Cautious progress in Libya's oil output

Rising Libyan oil production is primarily the result of the military success of General Khalifa Haftar, whose so-called Libyan National Army forces are wresting unitary control of the oil supply chain from a patchwork of local militias.

These advances have forced the UN-backed Government of National Accord to the negotiating table, raising the prospect of a political settlement that would reinforce the gradual and fragile movement towards normalization in the country.

Libyan oil production rose above 800,000 b/d in May for the first time in three years.

The trend is gradually upward, but in fits and starts; April production averaged 550,000 b/d, 70,000 b/d lower than in March, according to an S&P Global Platts survey.

While rising Libyan oil production is problematic for OPEC as it seeks to reduce output to rebalance the market, on a national level it raises hopes that Libya is slowly recovering from years of war and infighting.

The National Oil Corporation (NOC) believes that production of 1.2 million b/d is possible by August, although this would still be some way short of the 1.6 million b/d recorded before the 2011 uprising against Muammar Qadhafi.

Whether this can be achieved depends on continued improvement in the political situation. There are currently two main centers of power: the House of Representatives in Tobruk in the east, which Haftar is affiliated with, and the Tripoli-based GNA.

Both lay claim to be the legitimate government, although only the GNA is recognized by the UN.

More importantly, as far as the oil industry is concerned, dozens of localized militias control different parts of the country. Most sprang up during the rebellion against Qadhafi and some are loosely allied with one or other of the two governments.

Separate factions have controlled various parts of the same oil supply chain, with fields, pipelines and export terminals all held by different groups. It is this partition, even more so than damage to the physical infrastructure of the industry, that has held back production.

Talks in the United Arab Emirates at the start of May suggested that the two governments could come together.

GNA leader Fayez al-Sarraj appears to have been forced to the negotiating table as Haftar now controls around two-thirds of the country.

On May 10, it was revealed that the GNA had offered to make Haftar head of an official unified national army if he agrees to back the Tripoli government.

The UN's position is particularly difficult. Its preferred government is losing the territorial struggle, while Haftar represents the only elected parliament in the country.

Aside from the UAE, the governments of Egypt and Italy are also heavily involved in the peace talks. Egypt wants a government of national unity formed to focus attention on tackling Islamist militants in Libya.

For its part, Rome has economic interests in its former colony, including Eni's heavy involvement in the oil industry. Italy also imports natural gas from Libya via the Greenstream pipeline under the Mediterranean.

The role of the NOC could be crucial in deciding the political balance of power. NOC has benefited from Haftar's forces progressively extending their control over the oil industry.

At the same time, NOC chairman Mustafa Sanalla has criticized al-Sarraj in recent weeks.

The UN may have backed the wrong horse, but the recent talks suggest that there is at least the possibility of it not being an either/or situation.