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Page added on April 21, 2018

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Disaster Looms Over Libyan Oil

Production

Is General Khalifa Haftar dead or alive? The leader of the Libyan National Army disappeared from the public eye earlier this month, and now rumors surrounding his health are beginning to circulate. Some media reports say he is dead, others insist he is alive.

If we are to trust a quote by Libyan Express of the French foreign minister, Haftar is alive and recovering after medical treatment in Paris. Yet, the possibility of him losing his position of power has already fueled fears about the future of Libya and its oil wealth. These fears are very likely to stoke oil prices further.

Haftar’s LNA, affiliated with the eastern Libyan government based in Tobruk and not recognized by the UN, was responsible for the revival of Libya’s oil industry after two years ago it retook the four export terminals in the Oil Crescent from the Petroleum Facilities Guard. The LNA made it possible for the National Oil Corporation to lift the country’s daily production rate to 1 million barrels and above. That’s up from about 300,000 bpd before the takeover of the terminals.

The task has not been easy, however, and this fact highlights the dangers inherent in what could turn out to be an inflection point for Libyan politics and oil. As one commenter, Tarek Megerisi, said, even if he is alive, Haftar is an elderly man and no certain successor for him at the helm of the LNA has been picked.

Libya’s recovering oil production has been a swing factor for oil prices since 2016. When it was on the rise, prices fell. Yet there were so many outages as various groups vied for attention and money by blockading pipelines and oilfields that prices rose on news from Libya pretty much as often as they fell on reports from the North African nation that sports the largest oil reserves on the continent.

In this context, it’s safe to assume the first thing that happens in case Haftar is incapacitated would be a resurgence of rival factions, including extremists that he squashed, seeking to regain lost ground and influence. Those intimately familiar with the situation in Libya such as Megerisi note that the LNA itself is far from a solid, coherent organization. There are internal rivalries as the army is made up of regular military personnel, tribal forces, and various militias. So, the short version of what will happen in case of Haftar’s demise is chaos.

Analysts interviewed by CNBC have suggested that if the LNA gets beheaded, its rivals—and probably parts of it—will rush to the Oil Crescent to secure control over whatever part of the oil producing and exporting infrastructure they can. Production will naturally be disrupted and so will exports, until the dust settles, if ever.

One conservative estimate of the effect of this chaos on oil production from Eurasia Group is for a 200,000-bpd decline. This is an amount substantial enough to push prices higher, especially now that global supply is tightening thanks to OPEC’s efforts, but mostly on the back of Venezuela’s strife. Exactly how high prices will jump is difficult to say, but with a sufficient degree of chaos in Libya, Brent could inch a lot closer to the US$80 level that Saudi Arabia now eyes as its preferred price.

And there’s something else. Even if Haftar is alive and indeed well, chaos may resurface. Yesterday media reported that the LNA’s chief of staff survived an assassination attack with a car bomb. Though it is unclear who was behind the attempt, Libya experts believe the LNA is a blink away from internal fragmentation, which will doubtless spread outside the organization and embolden rival groups to make a power grab for the country’s oil.

By Irina Slav for Oilprice.com

 



4 Comments on "Disaster Looms Over Libyan Oil"

  1. deadly on Sun, 22nd Apr 2018 12:48 pm 

    It is always a fight over something and if it ain’t oil, it will be wheat, if not wheat, grapes, if not grapes, then olives, if not olives, then something else to fight over will be there, no problem.

  2. Boat on Sun, 22nd Apr 2018 1:14 pm 

    Libya, Iran and Nigeria have all added significant production in the last couple of years. Who is to say they can keep it up. They could easily implode like Venz as well.

  3. Go Speed Racer on Sun, 22nd Apr 2018 2:23 pm 

    Blow them up, and pump out the oil.
    4 out of 5 Republicans can’t be wrong.

  4. BobInget on Mon, 23rd Apr 2018 2:39 pm 

    http://www.livecharts.co.uk/MarketCharts/crude.php

    EXCLUSIVE-Arrested Chevron workers could face treason charge in Venezuela -sources
    Marianna Parraga, Alexandra Ulmer
    7 MIN READ

    HOUSTON/CARACAS, April 23 (Reuters) – Two Chevron Corp. employees detained in Venezuela last week could be charged with treason for refusing to sign a parts contract for a joint venture with state-owned oil company PDVSA, according to two sources familiar with draft charges against the U.S. firm’s executives.

    The arrests, by national intelligence agents, marked the first at a Western oil firm in Venezuela and represent a dramatic escalation of growing tensions between PDVSA and foreign companies over control of supply contracts, the sources told Reuters.

    The widening dispute could worsen operational chaos that has caused the OPEC nation’s oil output to plunge by 23 percent, or 450,000 barrels per day, since October.

    “These detentions are going to accelerate the operational crisis,” another source with knowledge of Chevron’s operations told Reuters. “Procurement could end up in paralysis if nobody wants to take the risk of signing or authorizing anything.”

    The draft treason charges – seen by Chevron lawyers last week, the two sources said – raised concern that the oil major could get caught in the crossfire between Washington and Venezuelan President Nicolas Maduro, who accuses the U.S. government of sabotaging the economy to topple his administration. The United States has imposed sanctions on senior members of Maduro’s government and PDVSA.

    The two Chevron employees were jailed when they refused to sign a supply contract written by PDVSA executives under an emergency decree – which skips the competitive bidding process, according to a half dozen sources close to the case. Such decrees have been cited by Venezuela prosecutors as a means of extracting bribes in some recent PDVSA corruption cases.
    More at:
    https://af.reuters.com/article/commoditiesNews/idAFL1N1S017Y

    Deadly, Respectfully, w/o oil, crops, any crops,
    to feed billions, can’t be grown.

    Failing Venezuelan production lies at the heart
    of predicted shortages.

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