Libya’s National Oil Corporation declares force majeure on its largest oil field after shutdown by militia

A picture taken on June 3, 2020 shows an oil refinery in Libya’s northern town of Ras Lanuf. – Libya’s National Oil Company said Monday it had restarted production at Al-Fil oil field, closed since January by the forces of eastern military strongman Khalifa Haftar. The NOC’s announcement came a day after output resumed at Al-Sharara oil field, the country’s largest, following a string of victories against Haftar by forces backing Libya’s Tripoli-based unity government.

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Libya’s National Oil Corporation has declared force majeure on exports from its largest oil field Tuesday, after a militia group shut it down just days after it resumed production following a six-month blockade.

“The armed group, which came from Sebha, stormed the Sharara oil field and pulled their guns on civilian unarmed workers, coercing them to stop production at the field at dawn,” the state oil company said in a statement.

Workers at the massive Sharara oil field have shut it down at the demands of the armed group’s leader Mohamed Khalifa, who is linked to the renegade general Khalifa Haftar’s Libyan National Army, the instigator of a violent power struggle with Libya’s UN-recognized government that’s lasted more than a year. Haftar’s forces pulled back in May after a prolonged campaign to capture the capital Tripoli failed. 

Oil prices saw a slight “last-minute injection of upward buying pressures” Tuesday on the Libya news and worries over its stability, Stephen Brennock, an oil analyst at PVM Oil Associates, wrote Wednesday morning. “A few days after returning from a multi-month shutdown, the Sharara field went offline only to restart and suffer a second stoppage in the space of a few hours.”

“Simply put, a sustained recovery in Libya’s oil production is not currently on the cards.”

Libya’s southwestern Sharara field previously had a 300,000 barrel per day output, and was resuming production gradually after reopening on Saturday. It’s now in renewed jeopardy after a long period of shutdown that began in January amid fighting that took the majority of the OPEC state’s oil production offline. 

As warring factions within the country attempted to use the key commodity to seize control, output in Africa’s third-largest oil producing nation plummeted in late January from around 1.2 million bpd to just over 320,000 bpd and is now estimated to be around a mere 90,000 bpd. The crisis exempted Libya from OPEC’s production cut agreement meant to stabilize oil prices.

The country’s petroleum sector represents 95% of its export earnings and 60% of its GDP.

On Monday, Goldman Sachs had raised its Libya production forecast, “assuming a return of Western production of 0.4 m b/d by July.” It cited Libya’s Sharara reopening and production coming back online as one of many reasons to doubt the current rally in oil prices, as its output is not bridled by the OPEC deal. 

On Sunday, commodities analyst Edward Bell at Emirates NBD wrote that “a ceasefire between competing factions in the country should allow output to bounce back quickly.” But he was blunt and quite prescient about the risks to its stability, adding that “the political dynamics in the country remain fluid and we would be very hesitant to assume stable output of around 1m b/d for the rest of 2020.”

But while in more “normal” circumstances the abrupt shutdown might have helped boost Brent prices, amid a glut of supply and coronavirus-depressed global demand, the news is so far being largely overlooked by markets. Brent crude was trading at $40.61 a barrel at 8 a.m. Wednesday morning in London, down 1.38% from the previous day.

Libya’s National Oil Corporation runs Sharara jointly with France’s Total, Austria’s OMV, Norway’s Equinor and Spain’s Repsol. 

World leaders discuss Libya amid ‘messy’ international interventions

Nine years after a U.S.-led coalition toppled Muammar Gaddafi, Libya remains a fractured state, ravaged by civil war and terrorism. And a vast array of competing foreign interests have entered the Libyan arena, including Turkey, Russia, Qatar, France, Italy, the United Arab Emirates and Egypt. The lack of stability and outside influence has led some to call it the “new Syria”.

World leaders spoke about the war-torn country of 6.4 million on Tuesday, with Turkish President Recep Tayyip Erdogan saying that he and U.S. President Donald Trump discussed the conflict via phone and agreed on “some issues” there, without going into detail. 

During another official phone call between Russian President Vladimir Putin and German Chancellor Angela Merkel on the same day, the leaders also “expressed their concern” about the renewed escalation in Libya. 

Libya in the 1970s was pumping 3 million bpd of oil. Before the 2011 NATO intervention that helped oust Gaddafi, it was producing 1.6 million bpd. The country’s population sits above the largest proven oil reserves in Africa, but hardly benefits from them — the UN estimates as much as 40% of the country lives below the poverty line.

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