Can Big Oil Succeed Where Diplomacy Has Failed in Libya?
- Major Western energy firms, including Chevron and Eni, have secured new Libyan oil blocks in a bid to raise output to 2 million bpd by 2028.
- Libya holds Africa’s largest proven crude reserves and significant untapped gas potential, but production remains vulnerable to political shutdowns.
- The unresolved dispute over oil revenue distribution between rival factions continues to pose the greatest risk to long-term stability.
Libya’s first oil field licensing round since the removal of Muammar Gaddafi as leader in 2011 has seen a slew of major Western international oil companies (IOCs) choose to either re-enter the country after a long absence or bolster their existing operations in a stunning success for Tripoli. As part of the National Oil Corporation’s (NOC) target of lifting oil production to 2 million barrels per day (bpd) by 2028, it announced last year that 22 offshore and onshore blocks would be licensed in the initial bidding round. Perhaps the standout winner of a contract award was U.S. supermajor Chevron, designated as the winning bidder for Contract Area 106 in the country’s oil-rich Sirte Basin, marking its return to the country after a 16-year hiatus. Other Western majors that secured new fields were Italy’s ENI, Spain’s Repsol, and Hungary’s MOL, with Middle East heavyweight QatarEnergy also gaining an award. So, does all this herald a brave new era for Libya, or will it turn out to be just another false dawn?
What augurs well is not just the breadth of Western firms choosing to expand their presence in Libya, but which firms they are. The oil and gas sector holds a unique position in the global business world in that companies operating in foreign locations are afforded an enormous degree of autonomy on the ground, similar in legal terms to embassies being treated as being on native soil wherever they are located. In practical terms, under international law, foreign oil and gas firms are allowed to deploy whatever security personnel and related infrastructure developments they see as being necessary to safeguard their investments on the ground, provided that these meet with the approval of the indigenous government, but this is virtually always the case. Consequently, perhaps the best way for any government to quietly build up its influence in a foreign country is to gradually expand the presence of its major oil and gas firms on the ground. Perhaps the most successful early template of this model of building political influence through business expansion was in the British East India Company’s role in the expansion of the British Empire. Established in 1600, the huge firm functioned extremely successfully for nearly 300 years using trade and investment as the means to gain control over large swathes of Asia, including India and Hong Kong, with all such projects safeguarded by a British security force at one stage as large as 260,000 men. The additional benefit for the British East India Company and its home country was that its colonising activities more than paid for themselves in the profits from the business it transacted, and the West is hoping its efforts in Syria will do the same.
Several major Western oil and gas firms have been at the forefront of the ongoing attempt by the U.S. and Europe to rebuild their influence in world’s key oil and gas region, the Middle East, in recent years, particularly since the U.S.’s unilateral withdrawal from the ‘Joint Comprehensive Plan of Action’ (JCPOA, or colloquially the ‘nuclear deal’) with Iran in 2018. This inadvertently opened the door for China and Russia to use Iran as the lever to expand their presence across the rest of the ‘Shia Crescent of Power’, which included Iraq, Syria, and Lebanon, among others, and then to push further into former Western allies -- most notably Saudi Arabia, and the UAE -- from that operational base, analysed in my latest book on the new global oil market order. U.S. President Donald Trump’s second term in office has seen a major pushback on Iran in that configuration, and consequently on China and Russia too, with a further reason for greater oil and gas exploration and development opportunities in the Middle East arising from the loss of Russian oil and gas supplies to Europe after the Kremlin-ordered invasion of Ukraine in 2022. Several major Western firms have been at the forefront of this broader move to rebuild Western influence in strategically crucial areas of the Middle East -- most recently incorporating Iraq -- including the U.S.’s Chevron, ConocoPhillips, and ExxonMobil, Great Britain’s BP and Shell, France’s TotalEnergies, Italy’s ENI, and Spain’s Repsol. QatarEnergy’s presence in a consortium with ENI in Libya also recognises the Arab country’s pivotal importance in the new post-Ukraine War world order, as a key supplier of liquefied natural gas to Europe instead of Russian gas supplies, as part of its broader designation as a ‘major non-NATO ally’.
That said, there is still much oil and gas potential for them to work with in Libya, despite the ongoing civil war since Gaddafi’s removal as leader in 2011. Prior to that, Libya was producing around 1.65 million barrels per day (bpd) of mostly high-quality light, sweet crude oil, particularly in demand in the Mediterranean and Northwest Europe. It also remained the holder of Africa’s largest proved crude oil reserves, of 48 billion barrels. Moreover, in the years leading up to Gaddafi’s forced exit, oil production had been on a rising trajectory, up from about 1.4 million bpd in 2000, albeit well below the peak levels of more than 3 million bpd achieved in the late 1960s, as also analysed in my latest book on the new global oil market order. Positively as well, Libya’s National Oil Corporation (NOC) was advancing plans at that point to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields, and its predictions of being able to increase capacity by around 775,000 bpd through EOR at existing oil fields looked well-founded. However, in the depths of the civil war, crude oil output fell to around 20,000 bpd, and although it has recovered now to just under 1.3 million bpd -- the highest level since mid-2013 -- various politically-motivated shutdowns in recent years have pushed this down to just over 500,000 bpd for prolonged periods. Libya also has plans to boost its natural gas production ?so it can become a significant supplier ?to Europe by early 2030, according to the NOC. It aims to increase gas production to nearly 1 billion standard cubic feet per day and start drilling ?for shale gas in the second half of this year.
This growing presence of top-flight Western oil and gas firms on the ground in Libya may be sufficient to catalyse a broader move to peace across the country over the long term, especially given the political attention on Libya that it will bring from Washington, London, Paris and Brussels. However, there remains the fact that the key reason for the civil disorder across the country that has caused multiple major oil shutdowns since 2020 has not yet been dealt with. To wit -- the Commander of the rebel Libyan National Army (LNA), General Khalifa Haftar, made it very clear that the interim peace agreement signed on 18 September 2020 with Tripoli’s U.N.-recognised Government of National Accord (GNA) would be dependent on a solution being reached on how the country’s oil revenues would be distributed over the long term. The key to this in his view -- and supported by the GNA back then -- would be the formation of a joint technical committee, which would: “Oversee oil revenues and ensure the fair distribution of resources… and control the implementation of the terms of the agreement during the next three months, provided that its work is evaluated at the end of 2020 and a plan is defined for the next year.” In order to address the fact that the then-GNA effectively held sway over the NOC and, by extension, the Central Bank of Libya (in which the revenues are physically held), the committee would also “prepare a unified budget that meets the needs of each party… and the reconciliation of any dispute over budget allocations… and will require the Central Bank [in Tripoli] to cover the monthly or quarterly payments approved in the budget without any delay, and as soon as the joint technical committee requests the transfer.” None of these measures has been put into place to date, and there are no ongoing discussions aimed at resolving them. It may be that the bolstered presence of Western interests in Libya may affect such changes, but until they do, the country’s long-term stability remains in question.
By Simon Watkins for Oilprice.com
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