Libya's eastern faction ends monthlong oil shutdown

Libya’s eastern faction said it had lifted “force majeure” on all oil fields, ports and facilities on Oct. 3, allowing for the resumption of crude production and exports after a crisis at the country’s central bank was brought to an end.

The outage reduced Libyan output by an estimated 750,000 b/d, slashing flows of light sweet crude into Europe. Exports continued to trickle out of eastern ports, but key western terminals including Mellitah were shut.

The imminent resumption of oil production and exports was announced by Osama Hammad, the head of the Government of National Stability in Benghazi, in a statement on social media, and confirmed by the Libyan National Oil Company. Hammad said the shutdown had been a “precautionary measure” in response to “the storming of the central bank by impersonators”.

His faction began shutting oil and gas fields and terminals on Aug. 26 after the western government in Tripoli — headed by prime minister Abdul Hamid al-Dbeiba — moved to replace central bank chief Siddiq al-Kabir and appoint a new board. The eastern faction is dominated by warlord Khalifa Haftar, whose self-styled Libyan National Army has regularly blockaded fields in the past.

Meanwhile, a force majeure was in place at the 300,000 b/d Sharara and 80,000 b/d El-Feel fields, operated by joint ventures between the Libyan National Oil Corporation and international companies.

In a statement of its own Oct. 3, Libya's NOC said it had lifted those declarations, as well as the force majeure at Es Sider after receiving "a formal security assessment...which confirms that NOC can resume the operations and exporting operations to its customers."

On Sept. 30, the appointment of the new central bank head, Naji Essa, was approved by the High State Council in Tripoli and the eastern House of Representatives in Tobruk. Essa's interim appointment was agreed following days of UN-sponsored negotiations in Tripoli between eastern and western representatives.

Essa is a former advisor to Kabir — who fled the country after the shutdown fearing militia violence — and director of the institution’s Banking and Monetary Supervision Department. Kabir’s former deputy, Marai al-Barassi, will retain the role of second in command. The duo are expected to appoint a new central bank board within two weeks.

On Oct. 3, NOC boss Farhat Bengdara held a meeting with Essa, the state-firm said, during which the pair "discussed the mechanism for the central bank to finance production increase projects to maintain financial sustainability and compensate for the revenue deficit resulting from the closures and the decline in oil prices."

Libya has seen little stability since the fall of Moammar Qadhafi and has been run by rival governments since 2014. Relationships between key actors have a significant impact on oil production, while the central bank — which receives and disburses Libya’s lifeblood oil revenues — has become a political football in recent years.

The country boasts Africa’s largest oil reserves but pumped just 1.15 million b/d of crude in July, prior to the central bank crisis, according to the Platts OPEC Survey from S&P Global Commodity Insights. By Sept. 23, output had fallen to 562,000 b/d, according to a confidential production report obtained by Commodity Insights.

The NOC aims to boost production to over 2 million b/d within the next five years, a target that analysts view as optimistic.

The country’s light sweet crudes are prized by refiners in the Mediterranean and Northwest Europe. Libya’s flagship Es Sider crude was last assessed by Platts, part of Commodity Insights, at a 50 cents premium to Dated Brent on Oct. 2.

The imminent return of Libyan oil flows comes against a backdrop of rising crud supply fears in the Middle East amid escalating tensions between Israel and Iran.

Despite the breakthrough in the North Africa, country, front-month ICE Brent Futures were up $3.18/b on the previous close to $77.08/b as of 1609 GMT on Oct. 3.