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Libya's NOC gearing up output reboot as talks continue

Highlights

Force majeure clause still in place at key oil terminals

Talks to restart production ongoing, revenue mechanism still being decided

One tanker on way to load crude from Es Sider

London — Libya's National Oil Corporation is preparing for a resumption of oil production and exports from its eastern terminals but it is still waiting for the petroleum facilities guards in the Eastern region to lift the oil blockade, the company said on July 1.

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Force majeure on crude loadings out of the terminals of Marsa el-Hariga, Brega, Es Sider, Ras Lanuf and Zueitina remain in place, as the ports are still being blockaded by the guards, NOC added.

NOC is still in talks with regional countries and the Government of National of Accord under the supervision of the UN and the US to restart its oil output.

Libya is currently pumping around 80,000 b/d compared with around 1.10 million b/d before the blockade, which began on January 18, caused a collapse in oil production.

An oil tanker is currently en route to Es Sider to load crude, but NOC said it is still waiting to hear orders from Major General Naji Al-Maghribi, who is the leader of the Eastern Oil Facilities Guards, who protect these five oil terminals.

NOC said it had instructed all oil operators to start "preparing for production, maintenance and progressive operation of the fields."

Deal still to be agreed

The conflict between the UN-backed GNA and the self-styled Libyan National Army has escalated in recent months, with Libya's oil and gas facilities caught up in the dispute.

The GNA has recently gained ground against the LNA led by Khalifa Haftar, which has halted the latter's offensive into Tripoli. The GNA has been striving to move eastward toward the oil-rich Sirte Basin into the eastern stronghold of the LNA.

But the 300,000 b/d Sharara and 75,000 El Feel fields remains in the hands of Haftar, supported by Russian mercenaries.

The GNA is backed by Turkey and Qatar while the LNA is supported by Russia, Egypt, the UAE and Saudi Arabia.

The long-term viability of a deal along with a steady return of Libya's oil production remains a big question mark, according to most analysts.

"The GNA's loss of physical control of assets in the south, including Libya's largest field of Sharara, has raised the stakes in negotiations to resume production. Ultimately a sustainable deal to resume production may come via Turkey-Russia negotiations," said Iliasse Sdiqui, associate director at Whispering Bell, a risk management company covering Libya

"The silver lining is both parties realize the importance of oil to the economy. Positions are becoming clearer at the negotiating table and positive mediation could see some sort of temporary agreement."

Revenue mechanism

This standoff has finally led to talks of restarting most of Libya's oil output, but the situation is still very volatile as the country remains deeply fractured along eastern and western lines.

There is still a great lack of clarity over whether the current negotiations will result in a change in the distribution of oil revenues, which has been a huge bone of contention between the two sides, and is also one of the main reasons behind the blockade.

NOC has denied that a new revenue distribution mechanism is under discussion at the current negotiations.

"We categorically deny all the rumors about opening new accounts and distributing those revenues to three regions and percentages for that distribution," NOC Chairman Mustafa Sanalla said.

Sdiqui said the demands on both sides were unlikely to lead to long-term stability and production would continue to be sporadic and limited.

"The demands by the eastern tribes to resume production under a new revenue-sharing scheme, regardless of how genuine, will be perceived by the GNA and western region as political coercion to introduce reforms," he added.

"The GNA will continue to exert pressure by maintaining force majeure. Some exports may be allowed under US pressure, but overall production will be sporadic and limited."