London — The fortunes of Libya's oil industry hinge on how the battle for Tripoli ends as the protracted conflict between the Libyan National Army and the UN-backed Government of National Accord enters its 10th month.
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Despite the political uncertainty and violence, state-owned National Oil Corporation has managed to grow oil production, by adding barrels and storage capacity at key sites.
The company, headed by chairman Mustafa Sanalla, has also managed to convince some international oil companies to come back to the country and help rebuild its oil sector.
The aim is for a similar feat in 2020 and beyond.
Libyan crude production averaged 1.05 million b/d this year, according to S&P Global Platts estimates, compared to 950,000 b/d in 2018 and 810,000 b/d in 2017.
One of the main reasons for this is that almost all of Libya's key oil terminals and infrastructure, especially those in the east of the country, are already controlled by the LNA led by General Khalifa Haftar.
In fact the facilities not secured by the LNA, located in the west and southwest, are more prone to disruptions.
The town of Zawiya in the west, which is home to a 300,000 b/d export terminal and a 120,000 b/d refinery, has suffered many air strikes recently, raising the prospect of supply disruptions.
Hamish Kinnear, a Middle East and North Africa analyst at Verisk Maplecroft, said supply-side security risks will recede but won't vanish, with the southwest continuing to be a wildcard.
"Production in the Sirte basin is now secure under LNA suzerainty, and GNA-aligned militias have no capacity to threaten this," added Kinnear. "The LNA presence in the southwest is also strengthening, but they will be unable to prevent continued pipeline disruptions during 2020."
Paul Sheldon, geopolitical adviser at S&P Global Platts Analytics, said there would be frequent and sustained supply disruptions if the stalemate over Tripoli continues.
Around 400,000 b/d of supply is most at risk, given its locations outside of the LNA's eastern stronghold, according to S&P Global Platts Analytics.
"General Haftar's control of the major fields appears to hinge on tenuous alliances with local militias. Elsewhere, the vacuum created by Haftar's Tripoli offensive could eventually cause his many rivalsto move on oil facilities under his control, while jihadists could capitalize on unstable civil war conditions to target infrastructure," Sheldon added.
Sheldon said the general consensus is that an LNA victory would likely benefit oil production, as Libyan supply only stabilized after he gained control of the country's major fields and export facilities.
NOC has set its sights on boosting oil production to 1.50 million b/d next year from current levels of 1.25 million b/d.
This rise assumes 350,000 b/d of new output coming online next year, but that will be slightly offset by a natural decline rate of 7-8%.
Mohammad Darwazah, a director at Medley Global Advisors, said NOC's plans to boost production by 350,000 b/d appear ambitious although he also noted that 2019 showed the resilience of Libyan crude output.
"While the NOC recently secured $1 billion in funding from the Central Bank of Libya, security problems coupled with a lack of foreign engineers and investment will likely limit Libya's potential upside to 100,000 b/d," Darwazah added.
Longer term, Sanalla hopes to raise oil production to 2.1 million b/d and gas output to 3.5 Bcf/d.
THE RETURN OF THE IOCS
These targets are dependent on improved security keeping supply-side disruptions to a minimum but they are also tied to more involvement from international oil firms.
Lack of security has kept many IOCs away but it seems 2020 could see a fresh start for some of them in the war-torn country, which contains the largest oil and gas reserves in Africa.
France's Total and NOC recently finalized an agreement giving the oil major a minority stake in one of Libya's most lucrative set of oil blocks.
Total has been keen to increase its presence in Libya, and this follows a tried and tested model for the French energy major which has been successful looking for higher returns in risk-prone areas.
Total will help NOC in developing the North Gialo and NC 98 fields in the Waha license, increasing production by 180,000 b/d and investin $650 million to the development of this concession.
Russian oil company Tatneft meanwhile has resumed upstream work in Libya after more than five years. BP, Eni and Gazprom last year announced their intention to resume exploration activities, while OMV and Repsol have also said they hope to increase their upstream presence. However, their full return will depend on how the battle for Tripoli pans out.
The conflict in Libya has recently been internationalized, with Turkey, Russia, Egypt, Saudi Arabia and the UAE all involved, which could mean geopolitics further gettin in the way of uniting the alreadydeeply fractured North African country.
"Turkey in particularly has been active, doubling down on the GNA and announcing it was ready deploy troops to Libya -- all the while upsetting the Europeans and Haftar's Arab backers -- a sign that [Turkish president] Erdogan has begun to seriously flex his muscles across the Mediterranean," Darwazah added.
Geopolitics looks set to continue hanging over Libya's energy sector, but that may not stop it from continuing to grow.
-- Eklavya Gupte, firstname.lastname@example.org
-- Edited by Alisdair Bowles, email@example.com