Page 9 - DMEA Week 32

DMEA COMMENTARY DMEA

transfer their excess output to domestic refiner- independent of the rival factions, said it was
ies or storage facilities. conducting discussions on the resumption of oil
If they opt for either variant of the latter production. It also managed to bring some of its
course, they will quickly run into difficulties. If assets back online, lifting force majeure at two of
they maintain upstream production and try to its largest oilfields, Sharara and El Feel.
put extra volumes into storage, they will have to But within just a few days NOC declared
confront the fact that depots have limited capac- force majeure again. It said it had done so
ity, and when they fill up – as tank farms around because armed men from the Petroleum Facil-
the world have done this year, as a consequence ities Guard (PFG), a faction allied with LNA,
of the coronavirus (COVID-19) pandemic – stormed the two fields and reinstated the block-
there is no place to put the extra volumes. (They ade. Since then, the company has noted armed
will also have to consider the risk of using facili- clashes between PFG troops and other militias
ties that are, as Sanalla noted, less secure because allied with LNA. It has also reported the presence
of the unrest in Libya.) of outside forces – mercenaries from Syria and
Likewise, if they send the extra volumes to Sudan, as well as Russia’s private Wagner group
domestic refineries, they will have to confront – at Libyan oilfields and export terminals.
the fact that these plants have limitations of their
own. Oil-processing plants cannot accept unlim- Diplomatic and military conflict
ited quantities of feedstock, and even if they do These tensions are not likely to abate soon.
raise throughput and turn out more petroleum Indeed, they may get worse, given that Libya
products, they cannot sell more than the local appears to be headed towards a diplomatic clash
market is able to absorb. As such, they too will with neighbouring Egypt – and perhaps with the
have to find a way to put their extra volumes European Union as well.
into storage. (They may also have to take steps to The GNA relies heavily on Turkey, which has
prevent the extra fuel from falling into the hands been supportive of its interests. To this end, it has
of smugglers, which NOC described as an addi- supported Ankara’s territorial claims in the east-
tional source of instability for the country in a ern Mediterranean. Last December, for example,
statement dated August 6.) it signed a maritime accord designed to establish
This leaves curtailing production, an option the boundaries of Turkish and Libyan exclusive
that has its own risks. It often involves shutting economic zones (EEZs) in the sea.
down development wells at oil and gas deposits The agreement has drawn heavy criticism
– and then, further down the road, dealing with from Greece, which says that Turkey’s claimed
the fact that these wells may not yield as much as boundary comes too close to the island of Crete
they did prior to closure. and infringes upon the Greek continental
shelf. It is also under fire in Cyprus, which has
Production shutdowns expressed similar concerns, and the EU is paying
NOC is already in a difficult position on this close attention, because both Greece and Cyprus
front, given that many of its wells have had are member states.
to be taken offline since January, when LNA The stakes in this dispute have gone higher
forces began mounting a blockade that forced over the last week, as Greece has now signed its
the shutdown of many oil and gas fields, as well own maritime accord with Egypt, laying claim
as pipelines and other midstream infrastruc- to some of the same areas covered by the deal
ture serving the coastal terminals. The block- struck between Turkey and Libya last Decem-
ade caused Libyan oil production to drop from ber. The stage appears to be set, then, for more
more than 900,000 barrels per day in mid-Jan- diplomatic wrangling, as the EU appears to be
uary to less than 100,000 bpd just a few months in favour of the Greek-Egyptian deal. There may
later. also be more armed conflict in the near future, as
Conditions did appear to be improving in Egypt’s government has laid the foundation for
early June, as peace talks brokered by the EU military intervention on LNA’s behalf.
earlier in the year gained momentum and GNA If Cairo does take that step, Libya’s oil termi-
troops took territory back from LNA and its nals are likely to see more fighting. If so, Sanalla’s
allies. At that time, NOC, which is nominally warning of disaster may prove prescient. ™

Week 32 13•August•2020 www. NEWSBASE .com P9