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Libya's Sharara oil field reopens after brief halt, situation remains volatile

Highlights

Libyan oil revival faces further setback on east-west political divide

NOC had earlier declared force majeure on Sharara exports

Armed group loyal to LNA enters key site, force short-lived shut-in

London — Libya's largest oil field reopened June 9 just a few hours after it had been shut by an armed group, underscoring the fragility of the country's much anticipated return to export markets.

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"Sharara has reopened after a meeting at the field," a source close to the matter told S&P Global Platts, adding that the situation remains volatile. "The group agreed to let operations resume."

The 300,000 b/d Sharara field had briefly restarted operations on June 6 after almost five months of shut downs caused by armed unrest, only to be closed again when militants seized control of the site. Sharara, which produces light-sweet grade crude preferred by European refiners is crucial to Libya's plans to return to the market after months of closure.

Libya's potential return to export markets with up to 400,000 b/d of mainly Es Sider and Sharara grade crudes comes as its partners in OPEC and their allies agreed on extending production cuts to cuts through July, to help bolster the market as it emerges from the depths of the COVID-19 pandemic.

National Oil Corporation (NOC) -- which runs the field - said it declared force majeure on crude loadings out of Sharara after the group entered the area. The field had reopened June 6 after NOC convinced the guards protecting the fields to switch sides from the Tobruk-based Libyan National Army to the UN-backed Government of National Accord (GNA).

NOC said earlier that Sharara production would ramp up to 30,000 b/d following the damage caused by the very long shutdown. The field is expected to reach full capacity within 90 days.

A key pipeline valve connecting the Sharara and El Feel fields with the Zawiya terminal and refinery had reopened June 5, paving the way for a resumption of output. Both sites were shut for almost five months due to a blockade that has dragged Libyan output to its lowest in almost nine-and-a-half years.

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Libyan crude production was around 70,000-80,000 b/d, less than a tenth of levels before January 18, when the LNA orchestrated an oil port blockade. Production was then at its lowest since September 2011, when civil war led to the downfall of Moammar Qadhafi.

Sources in country told Platts that armed groups loyal to the LNA and its leader Khalifa Haftar are now expected to move towards and threaten the 75,000 b/d El Feel oilfield, which only restarted on June 7.

Libya holds Africa's largest proven oil reserves. However, chronic political turmoil has undermined its ability to restore output to pre-civil war levels.

Despite recent military gains by the GNA, the LNA still controls the eastern terminals of Es Sider, Ras Lanuf, Brega, Zueitina and Marsa el Hariga. This means some two thirds or around 800,000 b/d of Libyan crude remains offline.