(Oil Price) – With Russia still focused on Ukraine and China on Taiwan, the U.S. and its key Western allies — most notably, Great Britain, France, and Italy — are continuing to secure highly strategic geopolitical gains across the Middle East and North Africa (MENA).
Following Moscow’s loss of its key client state in the region, Syria, the allies have been quick not just to build out their influence there but also in Libya, a longtime area of interest to the Kremlin following the West’s ill-thought-through removal of Muammar Gaddafi in 2011. This time, there appears to be a more coherent plan in place for the North African oil state, revolving around Western oil and gas firms building out their presence across multiple sites and then leveraging this and the corollary economic power into political sway too. So, does the recent resumption of deepwater drilling in Libya’s Sirte basin after a 17-year hiatus mark a decisive shift in the plan to gradually consolidate the country back into the West’s sphere of influence, and will it work?
There is certainly plenty for the West to work with in Libya’s oil and gas sector. Before the removal of Gaddafi and the civil war that ensued, 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 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.
Despite this still fractious backdrop, the more focused high-level political attention of Washington and its key allies on MENA countries that offer oil and gas supply alternatives to Russia has spurred interest on the part of the West’s international oil companies (IOCs) in stepping up their operations again in Libya. This has been notably reflected in the huge response to Libya’s first oil field licensing round since 2011, with more than 40 IOCs having registered their interest in the 22 offshore and onshore blocks to be licensed. These new agreements will build on those put into place earlier by several European firms, including French energy behemoth TotalEnergies, which agreed back in 2021 to continue its efforts to increase oil production from the giant Waha, Sharara, Mabruk and Al Jurf oil fields by at least 175,000 bpd. It also agreed with the NOC to make the development of the Waha-concession North Gialo and NC-98 oil fields a priority. These fields have a combined estimated capacity of at least 350,000 bpd. More recently, Great Britain’s Shell agreed to assess Libya’s exploration opportunities, and U.S. supermajor Chevron confirmed that it is planning a return to the country, having left in 2010.
All these efforts are part of the NOC’s overall target of lifting Libya’s oil production to 2 million bpd by 2028, supported by the newly re-energised ‘Strategic Programs Office’ (SPO). This had been focused on boosting production to 1.6 million bpd, 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. 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. Smaller developments, begun before the latest influx of bigger firms, have seen success in these drilling areas in recent months. NOC subsidiary Waha Oil announced it 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 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.
British oil supermajor BP also signed a memorandum of understanding last year 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 it is in the Sirte basin that it — along with Italian energy giant ENI — is now drilling the first deepwater offshore well seen in Libya for nearly two decades. This can be seen as having a greater significance, perhaps, than any other Western-led development in Libya in recent years because it signals something qualitatively different. Deepwater drilling requires long-term capital, political confidence, and security guarantees that such IOCs simply do not commit to unless they believe Libya is entering a more stable, Western-aligned phase. Targeting the basin’s Matsola exploration prospect in Contract Area 38/3 in the Mediterranean Sea, according to ENI, it is also the first major new operation between the two firms in Libya, with the joint venture comprising a 42.5% stake each for BP and ENI, with the remaining 15% held by the country’s sovereign wealth fund — the Libyan Investment Authority. The joint venture is committed to drilling a further 16 wells in Libya, across onshore and offshore areas.
Whether this all marks a decisive turnaround in the West’s influence in Libya remains to be seen. A key problem suggesting that it is not enough in itself to do so is the fact that the core reasons for the repeated political upheavals in the country that prompt long-running and extremely damaging oil production shutdowns have not been dealt with. When the 18 September 2020 agreement that ended an economically devastating series of oil blockades across Libya at that time was signed, Commander of the rebel Libyan National Army (LNA) General Khalifa Haftar made it clear that peace would be dependent on specific 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. The key one of these was that a solution would have to be reached on how the country’s oil revenues would be distributed over the long term. Core to this would be 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 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 since been put into place, which leaves fundamental flashpoints over the country’s core revenue stream remaining.
By Simon Watkins for Oilprice.com
