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Commodities 2021: Libya faces litmus test after meteoric output recovery


Lack of unity persists among Libya's several institutions

Production deal could unravel if revenue dispute resurfaces

Analysts wary of wild production swings

London — The recent meteoric rise in Libyan oil production surprised many on the oil market but with political stability remaining elusive, the OPEC member might again find it tough to sustain these levels in 2021.

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Wild production swings in Libya have become the norm in the past few years and unless a broader permanent political solution is achieved in 2021, more volatility is likely, analysts and Libya-based oil officials told S&P Global Platts.

Libyan oil output surged to over 1.2 million b/d in December, its highest level since June 13, as all the country's key oil fields and terminals were open, a rare occurrence last year. This level was reached a few weeks after the UN-backed Government of National Accord and the self-styled Libyan National Army signed a cease-fire mediated by the UN on Oct. 23. However, despite this deal, there remains a lack of unity amid Libya's several institutions, and the delicate subject of oil revenues is still be fully resolved.

Knife's edge

Analysts expect a long bumpy road ahead as both the factions will eventually have to make hefty compromises for Libya to achieve a comprehensive political solution in this year.

S&P Global Platts Analytics expects Libyan supply to stay at 1.2 million b/d in Q1 2021 but said production stability in 2021 is "far from certain."

"The [civil] conflict in Libya is yet to be resolved and could quickly unravel again in 2021," it said in a recent note.

Under the recently agreed ceasefire, the GNA and the LNA committed to establish a unity government and hold elections within 18 months.

But the LNA continues to control the bulk of Libya's oil infrastructure and talks between the two factions in the past few months has failed to deliver a breakthrough on some of the key issues.

"Continuing oil production is contingent on the LNA and GNA agreeing to a revenue sharing agreement," said Verisk Maplecroft Middle East and North Africa analyst Hamish Kinnear. "For this to happen, both sides will need to make concessions – ensuring that neither party will be happy with an eventual deal. Uncertainty will be baked into any agreement from its genesis: as the LNA can simply re-impose the oil blockade as soon as it feels it is not being paid its rightful share of revenues."

Revenue dispute

Libya's National Oil Corp. will hope for a stable year after a very volatile 2020. But even the state-owned oil company currently finds itself in a political muddle.

The NOC and the Central Bank of Libya have clashed on the distribution of oil revenues, a worrying sign for the conflict-torn country. Late-last year NOC said it would refuse to release its oil revenues to Central Bank, which are currently deposited with a foreign bank, until a unity government is formed.

NOC Chairman Mustafa Sanalla warned money from Libya's crude sales will not be transferred to the CBL until the bank shows "clear transparency" on how it allocates these funds.

The worry is that the NOC could become more entrenched in this political crisis, according to Iliasse Sdiqui, associate director at Whispering Bell, a risk management company covering Libya.

"The political dispute may have long-term implications for Libya's oil output," Sdiqui said. "Sanalla's latest stance provides fertile ground for another LNA-sanctioned closure. The LNA is capable of reinstating another closure by claiming the GNA has not fulfilled the terms of its local agreement to equally distribute oil revenue."

The distribution of oil revenues has been a huge bone of contention in Libya and it was also one of the main reasons for the eight-month LNA-led blockade of oil facilities that ended in September.

The impulsiveness of LNA leader Khalifa Haftar is also a key factor that could affect Libya's oil output fortunes this year.

"He (Haftar) is notoriously unpredictable and might see a new oil blockade as a way of re-imposing his authority," added Kinnear.

"This risks a resumption of conflict, but I suspect that Haftar is willing to gamble on this now that the LNA has entrenched itself in central Libya... A contrast to its headlong retreat last spring/summer."

Libyan crude production has been on a steep upswing in the past four months after its output had slumped to less than 100,000 b/d as an eight-month LNA blockade crippled the oil sector. But since the resumption of production, demand for Libyan light sweet crude has been robust. Libya holds Africa's largest proven reserves of oil, and its main light sweet Es Sider and Sharara export crudes yield a large proportion of gasoline and middle distillates, making them popular with refineries in Europe and China.