The Libyan Oil & Gas Sector Prospects

The decade starting in 2020 was widely expected to be regarded as the age of increasing renewable energy investment. With global environmental consciousness rising to an all-time high, investors began looking toward cleaner energy sources to meet skyrocketing demand. However, as the problems caused by the pandemic and the war in Ukraine have shown, although investment in renewables is still being pushed forward, the oil and gas sectors are still necessary to meet global energy demands.?

This is especially true in the case of Europe, a continent that depends on Russian gas for a large quantity of its energy needs. As seen earlier this year, turbulence in Eastern Europe resulted in soaring energy prices, and this all happened at a time when policymakers were looking to curb global inflationary pressures. However, one continent’s challenge is another continent’s opportunity. With the North African market being almost synonymous with oil and gas, players in the region are increasingly looking to fill the void left by Russia when it comes to supplying Europe’s energy needs.?

Libya, having the largest oil reserves in Africa and a significant quantity of gas reserves is one of the obvious candidates when it comes to fulfilling Europe’s needs. The economy of Libya depends primarily on revenues from the petroleum sector, which represents over 95% of export earnings and 60% of GDP. However, although Libya has substantial reserves that are enough to power its neighbours for generations, the truth is that the country is not without its challenges. At this point, the main challenge impacting the country’s oil and gas sector is political stability or lack of it. After 2011, various competing factions tried to fill the vacuum left behind following a change of leadership and administration at the executive level. As of 2022, the situation remains fluid, with competition between the rival administrations with the executive, the legislative, and the judicial all claiming political legitimacy. Although the situation is by no means stable, improvements have been seen in recent months. However, notwithstanding this, Libya is still by no means fully stable. Earlier this year, Libya’s oil operations all but halted owing to protests that resulted in the shutting down of oil fields and ports. In June, the ports of Es Sider, Ras Lanuf, and Hariga, together with various oil fields supplying them, were forced to halt their operations after protestor groups shut them down. The three ports in question handle over 70% of Libya’s oil production, and this episode resulted in the halving of the country’s output.

There are also more traditional challenges associated with Libya’s oil and gas sector. At the beginning of this year, various ports and terminals were forced to close down due to weather-related issues. Naturally, there aren’t quick-fix solutions to help with poor weather conditions, and these scenarios are only to be expected. Although by no means as severe as other issues, in the grand scheme of things, these situations also affect Libya’s production output, and therefore, it is crucial for the country to continue upgrading the resilience of its facilities by investing in key areas of infrastructure.

Libya’s political instability has also showcased itself when it comes to funding with regard to oil and gas. Mustafa Sanalla, the former Chairman of Libya’s National Oil Corporation, was quoted as saying that Libya’s oil sector needs foreign investors to renew, rebuild and modernise damaged infrastructure. While foreign investors would have been discouraged from investing in Libya as a result of the country’s domestic political situation, the truth is that the current global context presents significant opportunities due to the relative low cost per barrel to produce and export to the market. Europe’s energy needs are one such opportunity. In addition, rising global energy prices, and the realisation that oil and gas have a vital role to play in the shift towards cleaner energy, are other actualities that have the potential to turn into opportunities for investors looking to invest in Libya. Farhat Binqadara, the incoming chairman of the National Oil Corporation, has also made it clear that Libya is very much willing to look towards alternative sources of funding to modernise its infrastructure. It is also important that due flexibility is given to the National Oil Corporation when laws and institutions are dealt with, even more so because flexibility allows the corporation to make the most of the current global circumstances.

Although the challenges are significant, it is also true that Libya’s potential is also waiting to be exploited. At this moment in time, significant investments are being undertaken in the country, with projects such as the Mellitah Complex, the Waha Concessions Development and the Al-Sharara oil refinery (near the Al-Sharara oil field) amounting to billions worth of U.S. dollars.

As things stand, it is only expected that this investment continues to grow in the coming months, owing to investors realising Libya’s true potential. In the scheme of things, one could only hope that Libya’s political situation continues to improve so that current challenges are mitigated and production outputs improved.

Lastly, it is also observed that oil production has reportedly returned to pre-blockade levels of 1.2 million barrels per day. The lifting of force majeure announced in July 2022 relating to port and oil field closures and the return of oil production to pre-blockade levels are welcome news that should help temporarily ameliorate the fuel and electricity crisis. However, in the short term, Libya’s energy sector is expected to remain fragile, with the NOC’s leadership contested and political machinations continuing to affect day-to-day operations.

References

Bradstock F, ‘Libya’S Once-Great Oil Industry Is Facing A Plethora Of Challenges | Oilprice.Com’ (OilPrice.com, 2022) <https://oilprice.com/Energy/Crude-Oil/Libyas-Once-Great-Oil-Industry-Is-Facing-A-Plethora-Of-Challenges.html> accessed 4 August 2022

El Wardany S, and Mohareb H, ‘Libya’S Oil Output Almost Halts With New Wave Of Shutdowns’ (Bloomberg.com, 2022) <https://www.bloomberg.com/news/articles/2022-06-13/libya-s-oil-output-plunges-again-on-new-shutdowns-says-minister> accessed 4 August 2022

Energy Capital and Power, ‘Top Three Planned Oil & Gas Projects In Libya’ (Energy Capital & Power, 2022) <https://energycapitalpower.com/top-three-planned-oil-gas-projects-in-libya/?msclkid=e0a63540cd2b11ecadf77721a720d7bc> accessed 4 August 2022

ESI Africa, ‘The Age Of Renewable Energy’ (ESI Africa, 2022) <https://www.esi-africa.com/regional-news/international/the-age-of-renewable-energy/> accessed 3 August 2022

Jack S, ‘Oil Giant Shell Says It Needs Oil To Pay For Green Shift’ (BBC News, 2022) <https://www.bbc.com/news/business-59154930> accessed 3 August 2022

Reynolds A, ‘Yes, Russia’S War On Ukraine Did Raise The Price Of Gasoline’ (Cato.org, 2022) <https://www.cato.org/blog/yes-russias-war-ukraine-did-raise-price-gasoline-0> accessed 3 August 2022

Stimson, ‘The Situation In Libya: Reflections On Challenges And Ways Forward ? Stimson Center’ (Stimson Center, 2022) <https://www.stimson.org/2022/the-situation-in-libya-reflections-on-challenges-and-ways-forward/> accessed 3 August 2022

Temehu, ‘Libyan Oil & Natural Gas: (????? ?????? ?????? ???????)’ (Temehu.com, 2022) <https://www.temehu.com/oil-gas.htm> accessed 3 August 2022

The Libya Update, ‘Binqadara: Lack Of Funding One Of Main Challenges Facing Libya’S Oil Sector’ (Libya Update News, 2022) <https://libyaupdate.com/binqadara-lack-of-funding-one-of-main-challenges-facing-libyas-oil-sector/> accessed 4 August 2022

Zaptia S, ‘Libya’S Oil Sector Needs Foreign Investors: NOC Chairman Sanalla’ (LibyaHerald, 2022) <https://www.libyaherald.com/2021/06/libyas-oil-sector-needs-foreign-investors-noc-chairman-sanalla/?msclkid=636a2ad3cd2c11ecb5a86de9197133b5> accessed 3 August 2022