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Distribution of oil revenues dominate talks to restart Libyan output: sources

Highlights

Still no breakthrough on mechanism for oil revenues

Some sources optimistic a deal may be arranged within a week

London — Talks to restart the bulk of Libya's crude output and end the eight-month long blockade on the country's oil exports are ongoing, with the issue of distribution of oil revenues still being ironed out, sources close to the matter said Sept. 14.

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These negotiations have been making some progress, according to some sources, but the situation is still volatile as the country remains fractured along eastern and western lines.

"We could see a deal agreed to restart output by the end of this week. There has been progress but it is also realistic to have a healthy dose of skepticism," said one Libya-based source.

The North African oil producer has been wracked by conflict between the UN-backed Government of National Accord, and the self-styled Libyan National Army that has almost completely halted oil output.

On Jan. 18, eastern tribes, supported by the LNA, halted exports from five key oil terminals, which dramatically reduced the country's crude production, pushing it to its lowest levels since the 2011 civil war.

National Oil Corporation is still in talks with the GNA and the LNA along with regional countries, under the supervision of the UN and the US to restart its oil output.

Libya is currently pumping around 120,000 b/d compared with around 1.10 million b/d before the blockade, which began on Jan. 18 and caused a collapse in oil production.

Revenue distribution

The distribution of oil revenues has been at the heart of the oil blockade.

LNA's Khalifa Haftar controls the bulk of Libya's key oil infrastructure, but does not have access to oil revenues via the Central Bank of Libya. Neither does he hold the reins of the state-owned National Oil Corporation.

Negotiations are currently underway to find a revenue mechanism whereby the LNA or the eastern government gets access to these oil and gas revenues.

But some sources remain wary.

"In reality, LNA doesn't want oil out now because Haftar fears being sidelined," said another source, noting that keeping the oil blockade gives Haftar more leverage compared to his rivals.

Increased US and domestic pressure has also contributed to some more optimism that a restart of Libyan crude production is near.

"The audit of Central Bank of Libya is ongoing and we are cautiously optimistic that some revenue mechanism is being worked out," said a third source.

The US embassy in Tripoli said in a statement on Sept. 12 that the LNA has promised to reopen the country's energy shipments following talks after it had imposed an oil blockade in mid-January.

But the LNA hasn't officially confirmed this. LNA spokesperson Ahmed al Mismari told domestic news media on Sept. 13 that the recent US statement was "optimistic."

Mismari admitted that negotiations are still continuing, but reiterated a deal will hinge on a "fair revenue-sharing arrangement."

State-owned NOC couldn't be immediately reached for comment.

Since July, NOC has been preparing for a resumption of oil production and exports from its eastern terminals, but it has faced several obstacles in recent months.

Significant damage

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.

Recent attempts to exports crude and condensate out of storage from the port of Es Sider have also been thwarted due to security issues.

Crude production in Libya, which holds Africa's largest crude reserves, has been slashed from more than 1.1 million b/d before the blockade to around 70,000-120,000 b/d in the past three months due to the oil embargo.

Last week, NOC reiterated the need to lift the oil blockade, decrying the stoppage of gas production for power generation, which has forced it to import diesel and deplete cash reserves.

The NOC had previously said the cessation of the bulk of its output due to the current civil conflict had caused "significant damage to the country's oil reservoirs and infrastructure."

The blockade has inflicted a lot of damage to the Libyan oil sector from both a budgetary and technical perspective, with severe repercussions for future output capacity, according to NOC chairman Mustafa Sanalla.

Libya holds Africa's largest proven reserves of oil and its main light sweet Sharara and Es Sider export crudes yield a large proportion of middle distillates and gasoline, making it popular with refineries in the Mediterranean region and Northwest Europe.