Libya’s National Oil Company seeks changes to tap into output potential

NOC’s plan is to raise oil production to 2 million barrels per day by 2022 and 2.2 million bpd by 2024.
Saturday 26/10/2019
Changing environment. The building housing Libya’s oil state energy firm, the National Oil Corporation, in Tripoli.(Reuters)
Changing environment. The building housing Libya’s oil state energy firm, the National Oil Corporation, in Tripoli.(Reuters)

TUNIS - The role of oil in the Libyan economy and the state’s control of it need to undergo dramatic change, officials in the industry and the country’s private sector have said.

Libyan National Oil Company (NOC) officials, speaking at the Libyan Energy Sector Development Forum October 21-22 in Tunis, said Libya’s oil production stands at approximately 1.3 million barrels per day (bpd). That is the highest level it has been since mid-2013 but significantly lower than the 1.6 million bpd figure before the 2011 revolution.

Libyan production has been in decline for 50 years. It was producing 3.1 million bpd in 1969 when Muammar Qaddafi seized power and rose to 3.35 million bpd the following year but dropped because of political interference and a lack of maintenance and investment.

There is no reason production could not soar. In 2011 during the revolution, an official from the Arabian Gulf Oil Company, one of the country’s leading oil companies, said Libya had the resources to pump 5 million bpd if production techniques at existing fields were improved and new fields were brought online.

NOC’s plan is to raise production to 2 million bpd by 2022 and 2.2 million bpd by 2024. However, it needs both massive investment on the part of NOC and the willingness of foreign oil companies to operate in Libya.

NOC officials said the company needs $15 billion for its 5-year development plan, primarily for new technologies to improve and expand production and to upgrade and expand its pipeline network.

The scale of the task has been made worse by various conflicts in the country since 2014. Oilfields, notably the Ghani and Mabrouk fields south of Sirte that were attacked and damaged by the Islamic State militants in 2015, will take years to recover, a NOC official said on the sidelines of the forum. Between them, the fields once produced 400,000 bpd.

At the beginning of October, the Tripoli-based Government of National Accord (GNA) agreed to give NOC $1 billion towards development needs and, although the money has not been transferred to an account set up for this, officials said they believe it will arrive.

However, it is much less than what NOC had asked for and the GNA has a habit of not meeting NOC’s financial requests or, when it does settle on a figure, of not giving that in full. As a consequence, NOC has been accumulating debts.

Given that the GNA is not going to provide anything near the $15 billion NOC said it needs, the company is looking for a change in its relationship with the state, including a strong degree of independence.

At the forum in Tunis, officials spoke in favour of being able to borrow from the market through bonds and loans, a proposal the well-funded Libyan private sector and banks enthusiastically support.

Other proposals include replacing the outdated 1955 Oil Law with one that would reflect a change in the relationship between the corporation and the state; an end to the practice, in operation since 1984, by which oil revenue automatically goes to the state not NOC; a return to the situation in which NOC paid the state taxes and royalties; greater flexibility in exploration and production agreements to reflect that new production fields are likely to be in more difficult areas and will require greater investment by foreign oil companies; and the restoration of a Ministry of Oil.

One NOC official said the Oil Ministry would be the regulatory and supervisory authority, leaving NOC to be a commercial holding company, paying taxes profits and able to access funding.

NOC officials also said they want it to be a leaner organisation. It has 15,000 employees, they said, far more than needed.

The focus on the private sector and foreign investors was picked up by authorities in eastern Libya. Plans have been announced for a 300,000-bpd oil refinery in Tobruk.

The Benghazi Chamber of Commerce said the eastern-based government of Abdullah al-Thinni authorised Rahila Oil Services to build the refinery.

An independent company, Rahila operates petrol stations throughout the country. It is reported to be negotiating with an unidentified foreign firm to construct the project on a Build-Operate-Transfer basis on a 15-hectare site near the Tobruk end of pipeline from east Libya’s Messla and Sarir oilfields.

The announcement followed a decision by Tripoli-based NOC to restrict supplies of jet fuel to the east and the east’s response, setting up a parallel version of the Brega Oil and Gas Marketing Company. The latter move was condemned by NOC Chairman Mustafa Sanallah as an illegal attempt by the east to start exporting oil.

Sanallah has been trying to persuade foreign oil companies to return to Libya or head there for the first time.

He was recently in Algeria trying to persuade officials from the country’s energy company Sonatrach to increase oil and gas production in Libya. Before that he was on the sidelines of the Russian Energy Week conference in Moscow, encouraging Russia’s Gazprom and Tatneft to resume activities in Libya.

Tatneft diplomatically said it was “prepared” to return “in the coming weeks” as well as invest in exploration and development. Gazprom indicated that there could be further technical talks. However, the reality is that they will return only when they determine it is safe to do so.

BP and Eni, which agreed a joint-venture exploration deal in October 2018 and were to have started drilling in the first quarter of 2019, are reported to have indefinitely postponed their plans because of the security situation in Libya.

Sanallah has been increasingly strident in his calls for the economy to move away from its total dependence on oil. Speaking October 18 at a meeting of the Atlantic Council in Washington, he said: “Oil cannot be the only game in town. We need to take our fate into our own hands and develop our own strategy for national recovery.”

Supporting the role the private sector can play in funding NOC as well as in growing the national economy he added that “regulatory impediments to establishing private sector businesses are removed.”

However, there is no sign that the legal blocks on NOC accepting private funding are being removed.

As both state sector officials and representatives from the private sector noted at the Tunis forum, the GNA had “no vision” for reforming the oil industry or unfettering the potential of the private sector.

Some said the lack of vision was not just because of the security crisis. It was institutional and deep-seated; the crisis merely added to it.

Whether true or not, the crisis will continue to frighten off internationals, particularly oil companies and without the means for NOC to access private-sector funding, its plans for increased output will remain a considerable uphill struggle.