Libyan oil production could face protracted disruption as factions in the east seek to seize control of crude exports, adding pressure to a tight global market.
Eastern factions tried to take over oil exports in the past but struggled to find buyers because Western nations will deal only with the internationally recognised National Oil Corporation (NOC) based in Tripoli.
This has not stopped eastern forces seeking control of the ports, accusing Libya’s western-based government of failing to fairly share revenues.
The latest tussle for power has cut national production to about 600,000 to 700,000 barrels per day (bpd) after it had been running at a million bpd — still well below the 1.6 million bpd output before a 2011 uprising plunged Libya into chaos.
The damage to Libyan oil production started with the latest series of battles over Ras Lanuf and Es Sider ports, closed for two weeks with losses of about 450,000 bpd.
Last Thursday a parallel NOC in Benghazi started blocking tankers booked by the Tripoli-based NOC from loading at Zueitina and Hariga. The other port under eastern control is Brega.
The NOC in Tripoli said on Friday it expected to declare force majeure at Zueitina and Hariga on July 1, bringing total losses to 800,000 bpd, or $60 million in daily revenue.
NOC Tripoli chairman Mustafa Sanalla, writing in the Financial Times, called the latest crisis “by far the most dangerous” facing Libya’s oil industry since 2011.
Combined exports from the five ports now under eastern control was about 780,000 bpd in May, analytics firm Vortexa said.
“We took delivery of the ports and we have authority over them now,” the head of the parallel NOC in Benghazi, Faraj Said, told Reuters, adding orders were issued to prevent entry of any tanker not following its instructions.
The oil market — under pressure from falling Venezuelan and Angolan output, as well as concerns about a squeeze on Iranian supplies as US sanctions bite — remains tight after OPEC and its allies agreed to ease production curbs.
“Any lost barrel from Libya will be painful,” said Commerzbank analyst Carsten Fritsch. “It could not have come at a more inconvenient time.”
The Organization of the Petroleum Exporting Countries, Russia and its allies agreed last week to return to 100% compliance with cuts in place since January 2017, instead of exceeding those curbs.
That brings its own pressure to the market. Output increases will mostly be met by OPEC de facto leader Saudi Arabia and Russia, which erodes the buffer of spare capacity that can relieve unexpected supply disruptions.
Libya’s output tumbled as low as 200,000 bpd in mid-2016 before last year’s recovery to about a million bpd.
The turnaround was made possible in September 2016 when the Libyan National Army (LNA), led by commander Khalifa Haftar, took over blockaded oil ports including Ras Lanuf and Es Sider and allowed NOC in Tripoli to reopen them.
Eastern factions reversed that policy in June, accusing the central bank in Tripoli of paying salaries to LNA opponents and giving insufficient funds to the east. Eastern officials said they would send revenues to a parallel central bank based in Bayda.
Those revenues may not flow easily. France’s Total, which this year bought a 16.3% stake in the Waha Oil Company that exports through Es Sider, said it would only deal with NOC in Tripoli, in line UN, US and European demands.
“Total is bound by international and Libyan laws, including United Nations Security Council resolutions which demand Libya’s oil facilities and exports remain under the exclusive control of NOC,” it said, referring to the company in Tripoli.
The United States, the European Union and individual European states have repeated statements demanding NOC in Tripoli has sole control, though diplomats said Western warnings were delayed as efforts were made to reverse the move by eastern forces to put Benghazi’s NOC in charge.