Tag Archives: oil reserves

Libyan oil will fail to deliver despite unity government

Libya nominated a unity government yesterday after a lengthy UN-brokered negotiation, aimed at harmonising the embattled country that is currently being run by two rival governments.

But sadly political stability is still far away for this resource-rich country, which is having to fight the aggressively expansionist militant group Islamic State.

As such, it seems unlikely that the North African country, which has the largest oil reserves in the continent, will be able to return production to its 2011 peak of around 1.6bn barrels a day from its current levels of under 400,000 barrels.

With brent crude dipping to 12-year lows this week and hovering at around $28.30 a barrel yesterday evening, an absence of Libyan output will be of no matter to the market. But it is everything to Libya’s financial stability and its peace.

When I edited a Middle East-focused trade mag, I remember chatting to an insurance company CEO in Dubai shortly after Gaddafi had been toppled in 2011. The CEO, and a number of other UAE delegates, had been invited on a trip to Libya to boost trade. At the time, there seemed everything to hope for – I even wrote a feature along the lines of Libya’s oil reserves being the next big thing. But the awaited period of political stability and harmony failed to arrive, with competing armed forces taking control of oil fields even before IS came on to the scene.

Libya relies on oil for around 90 per cent of its revenue, so an unproductive Libyan oil sector means a financially weak Libya. A power vacuum and a struggling economy are manna to IS, which is destroying Libya’s oil fields, rather than taking them over like it did in Iraq and Syria. Whether this is a plan to weaken the country further in order to take control, or simply stage one of a plan to devalue the oil assets before pouncing on them, is debatable.

Either way, Libya is in dire straights. RBC Capital Markets research earlier this month called the country a “wild card” that could potentially add substantial quantities of oil to an already saturated market this year, but I think the term wild card is far too optimistic in this case. For wild card suggests a possible return to the stability needed for Libya’s oil sector to prosper – which would be incredible in the current climate.

Firstly, the new, nominated government needs to win acceptance – the fact that two out of the nine members of Libya’s Presidential Council have already rejected it shows just how divided the country is.

Secondly, to make progress on energy security in the face of low revenues, a divided government and attacks from a number of rebel groups, not just IS, will be a long and arduous process.

Thirdly, a growing number of oil fields have been destroyed by IS, meaning work would need to be done to return them to an operational standard.

Of course, situations change quickly and perhaps 2017 could present a more promising year for Libya and its oil reserves. But the longer it remains in flux since the demise of its tyrannical ruler, the less likely it seems.