Libyan oil in turmoil: ongoing political divisions and the continued existence of two state oil companies are stalling oil exploitation.

Author:Ford, Neil
Position:SPECIAL REPORT: Oil & Gas

Although it has some of the lowest oil production costs in the entire world, attractive geology counts for little in war-torn Libya. Few welcomed the brutal rule of Muammar Qaddafi but since his overthrow the country has been riven by a range of ethnic, regional, religious and political differences that are tearing at the fabric of national cohesion. Production on most oil fields has been halted and with no end in sight to the fighting, oil companies are beginning to write off their onshore assets, although the picture is a little less bleak offshore.

One of the biggest problems facing oil firms with interests in the country is the divided nature of Libya. Rival factions have controlled different parts of the country since the fall of Qaddafi in 2011. The government in Bayda, which is led by Abdallah Al Thani, is recognised by most western states but a rival regime under the leadership of Omar Al Hassi controls Tripoli and Misrata. Once the growing influence of Islamic State is thrown into the mix, the political picture is very bleak.

Oil fields, pipelines and export terminals are often under the control of different militia, which makes getting oil out of the country difficult on most fields. Even where armed groups allow exports they often demand hefty bribes in return. Groups opposed to the Tripoli government have blocked pipelines in the west of the country, including from the El Sharara Field, which would normally produce 340,000 b/d. Oil production has fallen from 1.6m b/d before the civil war to between 350,000 b/d and 380,000 b/d today, according to figures from the internationally recognised government.

Oil exports are the primary means of financing each militia and political authority, and some groups have attacked oil tankers and terminals in an attempt to cut off funding to their rivals. In late May, a tanker operated by the General National Maritime Transport Company was bombed by the Libyan Air Force, which is under the control of the Bayda government, as it arrived at the Port of Sirte. According to Bayda, the tanker was carrying arms as well as fuel. Insurance premiums for all vessels entering Libyan ports have rocketed, making it expensive to deal in Libyan oil at a time when global oil prices have fallen.

In addition, some of the refugees seeking to cross from Libya to Europe have attempted to stow away on tankers. Libya has become the most popular sailing point for refugees and economic migrants seeking to enter Europe...

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