Libya's National Oil Corporation faces another challenging year due to political instability, with its chances of increasing output to the coveted 1.25 million b/d target looking slim unless there are marked improvements in security and access to finance.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Libyan oil production is currently just under 1 million b/d, according to S&P Global Platts estimates, having risen over the course of 2017, largely thanks to the tireless diplomatic efforts of NOC chairman Mustafa Sanalla.
But the good work could all be undone if the core issues -- the lack of security and money -- do not improve.
Libya's output recovery has been impressive, with production rising more than 800,000 b/d after it fell just below 200,000 b/d in August 2016, when the key oil terminals of Zawiya, Es Sider and Ras Lanuf were down.
Production has averaged 793,000 b/d from January to November this year, according to S&P Global Platts OPEC survey data. This compares with just 375,833 b/d in 2016 and 397,500 b/d in 2015.
Before the civil war that started in 2011 the country could produce some 1.6 million b/d.
Download our special report: Riding the wave: The Dated Brent benchmark at 30 years old and beyond
As crude oil production in the North Sea continues to evolve, its role in an increasingly globalized market has started to shift, having an impact on Dated Brent and its position as a global oil benchmark.Learn More
Some analysts say the country still has the potential to push production steadily above 1 million b/d, but maintaining those levels will be the real test and big production swings are just as likely.
Another potential hurdle if Libya does get into its stride is that OPEC has asked Libya and Nigeria, which were previously exempt from cuts under the OPEC/non-OPEC output cut agreement because of their reduced production, not to exceed a combined output of 2.8 million b/d from January next year.
LACK OF FUNDS
Some analysts say they believe Libyan oil production could go as high as 1.3 million b/d if the NOC has a fully funded budget that will allow for maintenance, capex and salaries for oil workers, but this is a big if.
"Our base case is closer to 1 million b/d as political negotiations stall and Libyan National Army commander General Haftar contemplates a military move on Tripoli," managing director of consultancy Rapidan Energy, Scott Modell, said.
But funds for even the most basic maintenance at the oil fields are a problem.
Sources in Libya said there was an improvement in the second half of 2017, but finding the right contractors even when cash is available is an issue.
Most local contractors are either already owed large sums or are unwilling to go to more remote sites.
In the so-called Oil Crescent, around the Sirte basin in the east of Libya, operations have been running relatively smoothly.
However, even here operators face major obstacles. Germany's Wintershall, the operator of the NC-96 and NC-97 blocks in the Sirte basin, has been locked in a dispute with NOC since the beginning of the year.
In November it was forced to shut production at As-Sarah due to protests near the oil field.
The closure of the field reopened NOC's dispute with Wintershall over the operator's terms, as the decision was taken without any consultation with the state oil company.
Now the German oil company faces being pushed out of Libya entirely. Libyan output would be hit, with fields such as Abu Attifel dependent on export infrastructure operated by the company to get to market.
Abu Attifel crude is currently blended with crude from Zueitina for 150,000 b/d of exports. Should Wintershall exit the field, this could fall to just 50,000 b/d.
GENERAL HAFTAR'S MOVES
While output at its key fields in the west of Libya has stabilized, the real trial will be in the east, where General Khalifa Haftar is set to face off against rival militant groups, including Islamic State, which has sought to take advantage of Libya's security vacuum.
The western oil fields are only nominally secured. Even the Petroleum Facilities Guards, and other militias tasked with field security, have been targeted at times.
Furthermore, their requests -- for better food, living conditions and basic perks -- will be difficult to implement.
They constantly complain that their salaries are never paid on time, accumulating over months until NOC or the central bank has enough cash to pay out.
This all makes an environment ripe for exploitation and security lapses.
Haftar is supported by Egypt and the UAE, which has given him considerable leverage, but controlling huge swathes of territory has proved difficult, even with his resources.
He could also decide to close the eastern terminals and fields at any time.
His Libyan National Army fighters recently declared the Crescent a closed military zone and barred entry to anyone without their explicit permission.
This is part of the LNA's strategy to counter threats around the facilities in central Libya from the IS militant group, but it has also prompted fears of a fresh round of violence around Libya's key oil export facilities.
The Oil Crescent includes Es Sider, the country's largest port, as well as the Ras Lanuf, Marsa al-Brega and Zueitina ports.
Es Sider and Ras Lanuf were badly damaged by previous IS attacks, which reduced their capacity significantly.
Waha Oil Company, a joint venture of NOC and US companies ConocoPhillips, Marathon Oil and Hess, is currently looking for new ways to finance projects at the Es Sider export terminal, including replacing corroded pipelines and crude oil storage tanks.
The long absence of political stability has accumulated not only debt for international oil company operating in Libya, but exacerbated dangerous power vacuum there.
The lack of a central authority and a trusted mechanism for disbursing funds and government resources around the country will continue to be the biggest issue facing the operators.
Until Libya's competing local groups fear a centralized force, or see a national budget working which they consider fair and effective, the root causes underlying this instability and the interruptions that follow it will not fade.
NOC's Sanalla set out a long list of his hopes for 2018 in Houston in late-November.
"We hope next year to increase production. We hope to improve security and cut down the rate of interruptions. We hope to secure new investment. We hope a new political solution will be reached. We hope to finalize and pass our new Petroleum Law," he said.
However, it is hard to see his wish list coming true.