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With more than 40 companies having now registered their interest in Libya’s first oil field licensing round since the removal of Muammar Gaddafi as leader in 2011, the National Oil Corporation (NOC) is confident it can lift oil production to 2 million barrels per day (bpd) by 2028, according to the latest statements from the organisation. The expressions of interest in the 22 offshore and onshore blocks to be licensed follow last year’s agreements between the NOC and Great Britain’s Shell and BP to assess Libya’s exploration opportunities. Shortly after that, U.S. supermajor ExxonMobil inked a deal covering technical studies on a cluster of offshore blocks, while Chevron has also confirmed that it is planning a return to the country, having left in 2010. The key question for the oil markets, though, is does this influx of Western firms signal a genuinely more stable political backdrop in Libya that will allow it to finally make good on its oil potential?

There is certainly plenty of this to work with, as Libya remains the holder of Africa’s largest proved crude oil reserves, of 48 billion barrels. Before the removal of Gaddafi and the civil war that ensued, the country was producing around 1.65 million bpd of mostly high-quality light, sweet crude oil, notably the Es Sider and Sharara export crudes that are particularly in demand in the Mediterranean and Northwest Europe for their gasoline and middle distillate yields. This had been on a rising production 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, analysed in my latest book on the new global oil market order. That said, NOC plans were in place before 2011 to roll out enhanced oil recovery (EOR) techniques to increase crude oil production at maturing oil fields and the NOC’s predictions of being able to increase capacity by around 775,000 bpd through EOR at existing oil fields looked well-founded. Around 80% of all of Libya’s currently discovered recoverable reserves are located in the Sirte basin, which also accounts for most of the country’s oil production capacity, according to the Energy Information Administration. 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 1.4 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.

The problem for the Western firms now re-entering the country is that the core reasons behind these shutdowns have not been dealt with in any meaningful way. More specifically, at the time of signing the 18 September 2020 agreement that ended an economically devastating series of oil blockades across Libya at that time, Commander of the rebel Libyan National Army (LNA) General Khalifa Haftar made it clear that peace would be dependent on key objectives being met. Tripoli’s U.N.-recognised Government of National Accord (GNA), and fellow signatory to the deal, Ahmed Maiteeq, agreed to such measures that would address how the country’s oil revenues would be distributed over the long term and how the country’s perilous financial position might be stabilised in the short term. At that point, the blockade from 18 January to 18 September had cost the country at least US$9.8 billion in lost hydrocarbons revenues. Key to this tentative agreement was the formation of a joint technical committee, which would – according to the official statement: “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 the 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 have since been put into place, which leaves fundamental flashpoints over the country’s core revenue stream remaining.

Instead, Washington and London’s broad strategy in Libya appears to be that Western firms should re-establish their presence on the ground across multiple sites in Libya and, through this presence and ongoing investment across the country, the resulting greater political leverage can be used to finally put such mechanisms for peace in place. It is a similar idea to that currently being rolled out in Syria, whose previous longtime leader (Bashar al-Assad) was also removed by the West among a backdrop of intense factionalism -- and widespread Russian interference -- across the country as well. That said, the West’s presence in Libya never retreated as much as it did in Syria. Back in 2021, when the NOC first flagged serious plans to significantly boost its oil output, at that point up to 1.6 million bpd and then perhaps to 2 million bpd, French oil giant Total (now TotalEnergies) agreed to continue with its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd and to make the development of the Waha-concession North Gialo and NC-98 oil fields a priority, according to the NOC. The Waha concessions – in which Total took a minority stake in 2019 – have the capacity to produce at least 350,000 bpd together, according to the NOC, which added that Total would also “contribute to the maintenance of decaying equipment and crude oil transport lines that need replacing.”

Following these developments, NOC subsidiary Waha Oil announced that it has increased crude oil production by 20% since 2024 by dint of intensive maintenance programs, reopening shut-in wells and drilling new ones. Recent NOC comments highlighted similar initiatives as being the catalyst for the latest uptick in output across the country, together with new discoveries by its subsidiary Agoco and Algeria's Sonatrach in the Ghadames Basin and Austria's OMV in the Sirte Basin. These efforts are part of the newly re-energised ‘Strategic Programs Office’ (SPO), which was focused on boosting production to 1.6 million bpd within a year, before rising political tensions last year delayed such initiatives. The SPO’s potential success also depends in part on the outcome of the current licensing round, as it needs around US$3-4 billion to reach the initial 2026/27 1.6 million bpd production target. That said, the 22 offshore and onshore blocks to be licensed include major sites in the Sirte, Murzuq, and Ghadamis basins as well as in the offshore Mediterranean region. In addition the firms already mentioned, U.S. supermajor ConocoPhillips has voiced its interest in expanding its operations in Libya beyond its current running of the Waha concession. From Europe, interest may well include Italy’s Eni, Spain’s Repsol, and Austria’s OMV.

Meanwhile, Great Britain’s BP said last July that it had signed a memorandum of understanding to evaluate options for redeveloping the giant Sarir and Messla onshore fields in the Sirte basin, and to assess potential unconventional oil and gas development. The firm’s executive vice president for gas and low carbon, William Lin, stated that the agreement, “reflects our strong interest in deepening our partnership with NOC and supporting the future of Libya’s energy sector.” And given that Libyan oil production is exempt from OPEC+ quotas -- and is rarely priced in by markets until after the fact -- any major swing in output could once again tip the balance in a tight market, as it has done before.

By Simon Watkins for Oilprice.com