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Libya's NOC declares force majeure on Marsa el-Hariga exports amid budget crisis

Highlights

NOC says crude output could fall by 280,000 b/d

Sarir and el-Bayda field production already impacted

Budget crisis starts to impact production recovery

London — Libya's National Oil Corporation has declared force majeure on crude exports out of Marsa el-Hariga terminal as production from its key eastern fields is set to fall due to a budget row, it said late on April 19.

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This comes after NOC subsidiary Arabian Gulf Oil Co., or Agoco, had halted output at some of its fields due to the government's failure to send federal funds since September for operations.

This had forced Agoco to reduce its output as it was unable to "fulfill its financial and technical obligations" and it could be forced to reduce its crude output by 280,000 b/d, NOC added.

The state-owned company said this was "a result of the Central Bank of Libya's refusal to liquidate the oil sector budget for months."

The distribution of oil revenues and the budget allocations for the country's oil sector have been a bone of contention in recent months.

The country's interim Government of National Unity, which took over last month, is still waiting for its 2021 budget to be approved by the House of Representatives.

Sources said Agoco had already reduced output from the 150,000 b/d Sarir and 10,000 b/d el-Bayda fields. Production from the other fields it operates -- Hamada, Mesla, Nafoora and Majid -- is also likely to be impacted in the coming days.

The oil from these fields feed into key Libyan crude grade Sarir/Mesla, which is exported from the Marsa el-Hariga terminal. Exports from Marsa el-Hariga have recently averaged 250,000 b/d.

Recovery could stall

Libya's production recovery has gathered pace in the past few months, but some volatility is expected due to recent events.

A long-running dispute over so-called field allowances paid to Libya's Petroleum Facilities Guard has also recently flared up.

This could also lead to some oil terminal closures and upend a rapid output recovery.

The PFG, which controls key eastern terminals and some oil fields, has clashed with the finance ministry over salary and field allowance payments in the past few months.

The North African producer pumped 1.19 million b/d in March, its highest since June 2013, according to the monthly S&P Global Platts OPEC Survey.

NOC is planning to pump 1.45 million b/d by the end of 2021, as some eastern oil fields resume production.

However, this hinges on NOC receiving its full annual budget along with improved security at its oil infrastructure, according to NOC chairman Mustafa Sanalla.