This weekend, news came that a “vital” pipeline had reopened in Libya, linking
two oil fields to a port city outside of Tripoli and bringing about a
third of the country’s output back online. More importantly, its
signaled a real victory for the county’s energy sector after months of
setbacks.
There have been countless causes for the country’s energy industry
setbacks, but most have boiled down to a spike in activity among
militant and labor groups targeting oil and gas facilities in the name
of jobs, revenue sharing and increased political representation in the
eastern part of the country. While a few of these groups took aim at
energy operations in the weeks after the collapse of the long-standing
government of Muammar Gaddafi in late 2011, these actions have picked up
steam since January of this year, halting the country’s unexpected
production recovery in its tracks.In December 2012, Libya’s oil output had surged back to its pre-conflict level of about 1.6 million barrels a day, according to Libyan media reports. It was still far short of the country’s production high of 3.3 million bpd in 1970, but it sent a signal that LIbya’s new leadership was serious about the country’s most reliable source of recovery and long-term growth. However, in the nine months since, strikes and targeted political movements have slashed away at the country’s recovery, declining to just 150,000 bpd earlier this month.
It should be noted that in Libya, an energy sector setback is a setback for everyone. The country looks to energy revenue for a “lion’s share” of its income and its ability to meet its annual budget of about $54 billion. As of last week, energy facility closures were costing the country about $130 million a day in lost revenue. In any case, those losses would be a cause for concern, but in a country so in need of a bit of post-Arab Spring stability, these losses and the doubts pose a potentially disastrous threat.
In August, the country’s Prime Minister started the year by
saying his government would impose “force majeure” when it came to
protecting oil and gas efforts in the country.
“Oil is our only source of revenue,”
he said, according to the AFP report. “We will not allow any (armed)
force to confront the people and threaten national security. I warn
families, tribes and regions that we will take decisive measures.”
In a few cases, government efforts to curb this activity has only
caused Tripoli more problems. In effort to increase facility security
and provide jobs for the multitude of militia members who had found
themselves without a direction following the fall of Gaddafi, Tripoli
moved to increase the ranks of the Petroleum Facility Guards (PFG),
expanding the group to 18,000 at a cost of $16.6 billion, up from $6.6
billion allocated for the group in 2010. Instead, the group led to
further delays in production as competing militias clashed with each
other over questions of authority.While the PFG is still active and the government has pledged to arrest strike leaders, it appears that Tripoli is taking a more diplomatic approach to solving their production crisis. According to a Reuters report, the re-opening of the pipeline this week came after the “General National Congress’ crisis committee negotiated a deal with an armed group to allow the resumption of the El Sharara oilfield”. Tripoli also recently voted to increase pay for civil servants, which includes facility workers and has moved to increase energy sector authority in the country’s Eastern half with the opening of a National Oil Corporation office in Benghazi.
Still, addressing domestic concerns may only be part of the solution for Libya’s production crisis. Months of strikes and regional unrest have left foreign firms uneasy about staying put. Last week, Exxon Mobil XOM -0.55% announced they would be drawing down their staff due to concerns about the country’s security situation and the ability for Tripoli to ensure the safety of their employees. The company’s decision adds to the number of firms considering their assets, including Royal Dutch Shell and Marathon.
In addition to appealing for international assistance to help restore security, Tripoli has begun to consider offering more favorable terms for international firms ahead of next year’s planned auction for exploration rights – the first since 2011, according to The New York Times. That discussion mirrors a similar revaluation of investments criteria occurring in neighboring Algeria, which has also seen domestic production decline.
forbes
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