Libya's OPEC agreement and pipeline attack

Libya and oil has been in the news recently. One of OPEC's concerns was Libya and its oil output. In the production cut agreement that was set to expire in early 2018, Libya and Nigeria were exempt from such cuts. For this extended agreement, they joined in on the caps (kind of). Per Bloomberg:



First, Russia pressed the issue for both Libya and Nigeria to join in capping production.

Second, the agreed caps were not exactly aggressive. It was agreed that Libya would cap their production to 1M bpd. Of course, as the article points out, "Their highest output levels recorded this year are 1.01 million barrels a day for Libya . . . "

Third, Wood Mackenzie suggested that Libya might surpass that level.

I do question Wood Mackenzie's assessment. As mentioned in a previous blog post on Libya, the country isn't investing enough in their oil industry and has already hit the easy production locations. One reason for this lack of investment is that too many political factions are siphoning off profits.

Wood Mackenzie does hint at this when they discuss the fact that more money needs to be used for the "rehabilitation of its main export terminals, Es Sider and Ras Lanuf, and the development of oil fields in the west and south of the country  . . "

So my question is: will that money really be made available, because Libya may want to surpass the 1M bpd limit, but can they? Well . . .

Per Reuters, Wood Mackenzie isn't wrong in assuming that Libya wants to pump more oil. The article points out that Libya's National Oil Corp (NOC) received a quarter of its 2017 budget request and that a government meeting was held with the NOC to discuss the matter.

What I notice here is that the NOC needs to request a budget from the government, which goes back to my above comment about there being various political factions in Libya that siphon off oil profits. Can the government really give the NOC more money and if it does do so, what other part of the government gets cut? And if a specific part of government gets cut, will a political faction impacted by said cuts just go to the NOC and demand a higher payment?

The article also mentions:

Any additional funds could help make crucial repairs to the country’s energy infrastructure, a regular target for militant attacks, and boost output above the roughly 1 million bpd mark where it currently stands.

An additional Reuters article mentions:

The GNA [U.N. backed government] statement added that rising oil output would help “reduce the deficit, and helps the Central Bank of Libya to take monetary policies to deal with the liquidity crisis and support the Libyan dinar and stimulate the national economy.”

Of course, shortly after all the above discussions took place, militants (Reuters link) blew up a pipeline at the Es Sider port. The port is near Sirte, where via another blog post I highlighted the fact that this is an area where ISIS is hiding outside the city borders and that it is on the borderline of GNA and LNA (government that controls the eastern part of Libya) control. One should probably assume that ISIS (or some other non-aligned militant group) was responsible for this attack as neither the GNA or LNA have any incentive to do this.

Damage doesn't appear to be too extensive as another article mentioned that repairs should be done in a week (which basically means by the time this blog posts).

This does make me think: even if the NOC receives a greater percentage of their funds, how much of this money will be thrown down the drain due to continued militant attacks. And if Libya were able to increase production (just repeated a prior question above) would this just encourage various political factions to siphon off a larger portion of the profits, leaving the Libyan government in about the same financial condition? And then how will Russia react if Libyan production surpasses the agreed upon limit?