Published: June 13, 2019
Libya sends out warning signs
Uncertainty over the fate of Tripoli and recent statements by the government there are sending negative messages to IOCs
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A shudder went through international oil companies in May when Libya's Tripoli government abruptly suspended 40 foreign companies, including Total. The announcement, via a hand-written decree from the UN-backed Government of National Accord (GNA), also named non-energy players Alcatel, Thales, Siemens and a division of Nokia.
Economy minister Abdulaziz Issawi gave no reason for the decree, but diplomats see it as punishment meted out to European governments for their lack of support for the GNA in its battle for Tripoli against forces of the rival Tobruk government and its commander General Khalifa Haftar.
Compounding the confusion, the GNA changed its mind hours later, saying the companies can stay for now, with licences to be renewed — or not — in August.
Issawi's timing was poor because it came in the same week that the National Oil Corporation (NOC), controller of state oil assets, opened its long-planned procurement office in Houston. Even as NOC chairman Mustafa Sanalla was in Texas encouraging American companies to invest in Libya, the GNA was giving them an excellent reason not to. Libya has a long history of erratic behaviour with the oil sector, starting in the 1970s when Muammar Gaddafi nationalised IOCs, which lost billions in assets.
In Houston, Sanalla made a brave fist of it, saying Libya plans to spend $60bn and US companies will be first in line for contracts. But IOCs fear for both physical security and security of investment. Some also doubt the $60bn investment figure, an amount that equals Libya's total foreign reserves.
Sanalla says there can be no investment unless the war stops, warning at an Opec conference in Jeddah that, without a Tripoli ceasefire, production may fall 95pc.
The NOC head has won plaudits for single-handedly reviving Libya's battered oil sector in recent years. Treading a careful middle line between the warring regimes in Tripoli and Tobruk, he has raised production significantly from the August 2016 figure of 250,000bl/d. The NOC says production is currently 1.3mn bl/d, although intelligence providers Bloomberg, Platts and Reuters estimate the monthly average at about 1mn bl/d. Sanalla wants to get production to 1.4mn bl/d by end-2019 and 2.1mn bl/d by 2023. For that to happen, exploration has to resume and, for now, no IOC is willing to take the risk.
His claim that 95pc of production could be lost reflects the fact that the balance between the competing governments is breaking down. Until now, Sanalla wrote in a Bloomberg opinion article, Libya has had a "dual-key" system: Tobruk controls the oil fields, while Tripoli, by dint of international recognition, controls oil revenues. "What we are now seeing in Tripoli is a fight for control of oil facilities with a winner-take-all outcome," he added.
$60bn — Libya's planned investment
He seems to be right, as Libya's governance, of oil and everything else, is starting to fray.
One reason why GNA prime minister Fayez Sarraj garnered so little support in a tour of EU capitals in early May is the belief in many chanceries that his government's days are numbered. The GNA was appointed, not elected, three years ago by a UN-chaired commission; but it has failed to unify the country or provide strong guidance to the NOC. It administers only Tripoli and its environs, and has no security force, relying instead on capricious militias. Its banishment threats have not increased its credibility.
By contrast, Haftar, with his declared aim of removing Islamists from Tripoli, is Libya's most popular leader, according to a December opinion poll by US international development agency Usaid. The poll reported 61pc support for his Libyan National Army, far ahead of the GNA's 26pc. Haftar's support may, though, have slipped since he launched his Tripoli offensive, with nearly 500 dead and 66,000 having fled their homes.