Destabilising Actors and the Threat to the Libyan Oil Industry

Executive Summary

In 2014, the Libyan government split into two factions, resulting in an armed conflict between both sides and their allies. The country is now experiencing a complete lack of security and escalation of violence due to the increasing number of actors aided by their private militias. The Islamic State of Iraq and Syria (ISIS) took advantage of the resultant power vacuum and settled into certain coastal cities, posing a further threat to Libya’s stability. Escalating violence, as well as the absence of security and governance, has had a detrimental impact on the country’s oil sector, which accounts for 95 percent of export revenues and 60 percent of national Gross Domestic Product (GDP). Only a few oilfields are still operational and some of those are exposed to very high levels of risk. Libya needs to secure its active oil facilities in order to avoid further descending into anarchy and to safeguard revenues that are crucial for any confrontation with subversive forces.

Background

Libya was historically divided into three regions: Fezzan, Tripolitania and Cyrenaica. After reunification in 1951 and the creation of the Libyan state, its rulers faced a growing need to establish the Libyan identity. There was little sense of patriotism towards the nation, but rather, tribal, regional, religious and ethnic bonds determined identity. Gaddafi sought to undermine these connections by coining the slogan “nahna kull libiyun” (we are all Libyans), but in his efforts to create a common identity, he effectively repressed ethnic minorities.

The 2011 civil war opened the way for tribes, ethnic communities and political movements to establish paramilitary structures of their own and Libya’s new institutions were unsuccessful in either disarming these groups or absorbing them into the national army. After Gaddafi’s death, many of these factions rose up, either demanding a more important role in any future institutional framework or trying to establish their territorial autonomy. In 2014, the eventual division into two factions - one aligned with the Tobruq government and the other with parallel institutions set in Tripoli - further reduced the state’s capacity to control the country and overcome local, armed actors. Since 2012, uprisings and protests have often involved the sabotage and illegal occupation of oil sector facilities. In this way, armed groups have placed significant pressure on central institutions which need oil revenues to allocate public services; hindering oil production is a quick and effective means to strengthen their bargaining power with the government.

Libya is dependent on its hydrocarbons, which, according to the Organization of the Petroleum Exporting Countries (OPEC), accounts for 95 percent of export revenues and 60 percent of national Gross Domestic Product (GDP) (OPEC Annual Statistical Bulletin, 2015). These figures, even if strictly dependent on the quantities generated, demonstrate the importance of oil and natural gas to the Libyan economy. Libyan crude oil reserves are more than 48 billion barrels, the highest in Africa and ninth highest globally. The nation has six main oil basins, of which Sirte is the most productive and accounts for about 66 percent of national output, while a quarter of total production comes from the Murzuq basin, thanks to the El Sharara and El Feel oilfields. In Murzuq, the Tebus and Tuareg tribes fight each other for the control of the region, its natural resources, its lucrative border routes used for illegal immigration and the smuggling of weapons.

In 2010, before the revolution, Libya was producing about 1.48 million barrels a day. Europe generally accounts for 75 percent of Libyan exports of crude oil (primarily Italy as well as France and Germany), while 20 percent is sent to the Asia-Pacific region. In 2014, Libya produced 480.000 barrels a day, earning around 16 billion dollars. Oil exports to Italy alone had an estimated value of 3.2 billion dollars, and all the sales to Europe generated a 14 billion dollar profit (Verda, 2015).

The presence of ISIS

At the end of 2014, ISIS took advantage of the power vacuum in Libya to establish its presence there. The Islamist group occupied part of Derna in late 2014, working in coalition with other extremist organisations. After ISIS assassinated an important local leader earlier this year, a harsh conflict broke out between rival radical groups. Consequently, in July, ISIS was driven out of the city, thanks to the efforts of the Abu Salim Martyrs group and local residents in Derna (Paton, 2015). In Tripoli, the organisation is in alliance with at least one affiliate that is operational in the area, while in June this year, it took control of Sirte, which is close to all the ports used to export the oil produced in its basin. Here, the organisation is mainly opposed by Misrata tribesmen - allied with the Tripoli government - and by locals. ISIS has also absorbed and obtained control of Harawah and Nofaliya this past year, gaining ground on two of the most important export terminals: Ras Lanuf and Es Sider. Meanwhile, in Benghazi, Ansar al-Sharia and ISIS are allied against the Libyan army (Akbar, 2015).

Current oil and natural gas production

The presence of ISIS in Libya further complicates a situation characterised by the complex rivalry between the two governments and their respective allies. Furthermore, the Libyan context is not only affected by political dynamics, but also by clashes between rival tribes. The political power vacuum and large number of weapons available in the country have created the ideal environment for escalated violence. This lack of security has had a significant impact on oil and natural gas production.

Libyan oil production in September was around 350,000 barrels a day, although an official figure is difficult to determine. The Sirte basin currently accounts for around 200,000 barrels, while 80,000 barrels are produced in the offshore fields close to Tripoli and the remaining barrels are produced by the Italian oil and gas company Eni’s fields in the west of the country. Hydrocarbons produced in El Sharara and El Feel are strictly dependent on the pipelines carrying oil to the Mediterranean Sea, a few kilometres away from Tripoli. These facilities pass through territories controlled by the Zintani brigade, which is aligned with Tobruq. In November 2014, this community blocked the pipeline moving oil from El Sharara to the Zawiya port, demanding forces loyal to Tripoli to abandon the area. As a result, El Sharara, Libya’s largest oilfield, is currently completely closed. Located a few kilometres away from it, El Feel (or the Elephant) has been negatively affected by an ongoing strike by security guards, who have been demanding higher salaries because of the intensive clashes involving Tebus, Tuaregs and local tribes, as well as frequent cuts in electricity (Bousso, 2015).

Close to the Algerian and Tunisian borders, in the Ghadames basin, the Wafa field is active and generates 30,000-35,000 barrels a day, in addition to natural gas exported to Italy and used for domestic consumption. In the offshore fields, output remains unaffected by the escalation of violence. Al Jurf and Bouri are currently operating at full capacity, and their combined production - about 80,000 barrels a day - is exported through their offshore platforms.

In the Sirte basin, the situation is even more complicated, due to the presence of ISIS. In March, Libyan institutions declared force majeure in 11 oilfields, after violent acts committed by alleged ISIS affiliates. The group seeks to deprive the Libyan governments of oil revenues, in order to foster turmoil and ease its territorial advance. After attacks at al- Mabrouk, al-Bahi and al-Dahra oilfields, production has been halted in many fields close to Sirte, which has become the ISIS’ foothold.

Two of the most important oil terminals, Ras Lanuf and Es Sider, remain closed after militias attacked the latter in December 2014. The two ports are located in an area that sees frequent clashes between allies of the two administrations (Bousso, 2015). The short distance of these key facilities from the ISIS-occupied Nofaliya (less than 100 kilometres away) further endangers security. In the Sirte basin, most of the oilfields operated by the Zueitina Oil Company, Sirte Oil Company and Waha Oil Company (three branches of Libya’s national oil company: National Oil Corporation - NOC) have been shut down because of security issues or because production could not be released to the market. These fields mainly export their output through Ras Lanuf and Es Sider.

Most of the oil produced in Cyrenaica is currently generated by the Arabian Gulf Oil Company (AGOCO - one of NOC’s subsidiaries). This branch is active in the eastern part of the Sirte basin and sends products to the Marsa al Hariga port, which is close to Tobruq and controlled by its internationally recognised government. In July, AGOCO declared production of 220,000 barrels a day, mainly originating from the Sarir oilfield and other fields located in the same zone. Sarir has a capacity of more than 200,000 barrels a day, but its current output is affected by power cuts (al-Warfalli 2015, “Update 2”).

Many international oil companies also declared force majeure during this year, including Repsol, which operates in the El Sharara oilfield, and American oil companies, active in the areas attacked by ISIS. Eni has been the only foreign oil company able to maintain its activities, thanks to the location of the fields it operates and its advanced security systems. As far as natural gas is concerned, Eni currently produces more than 90 percent in the west of the country, thanks to the Wafa field and the offshore Bahr Essalam complex. However, many gas fields in the Sirte basin have been shut down because of strikes or lack of security. The natural gas generated by Eni is sent to the Mellitah establishment and is used both for domestic consumption and exported to Italy through the Greenstream pipeline, as agreed under the Western Libya Gas Project. Greenstream, a project developed by Eni and the NOC, connects Mellitah with the south of Italy. This pipeline has an annual export capacity of 10 billion cubic metres of natural gas. The gas produced in Wafa and Bahr Essalam is crucial for the country, as the exports generate important revenues and reserves provide energy to national industries and local consumers (Eni, 2015: 54).

Risks

Armed groups, aligned with the two rival governments, do not want to hinder the output of hydrocarbons because they are aware of Libya’s economic dependency on the industry. Revenues from oil and natural gas flow into the Central Bank of Libya, which divides profits between the two administrations. The export of hydrocarbons allows both Tripoli and Tobruq to allocate services, pay salaries and provide security in the territories they control. Terrorist and criminal organisations, on the other hand, seek to undermine legitimate institutions in order to create favourable conditions for recruitment and expansion. For these factions, the absence of a state is the best possible scenario and accordingly, one of their objectives is to ensure that both governments are unable to respond to the needs of their populations and provide security. Attacks on oil production are therefore key to undermining both Tripoli and Tobruq.

Gaddafi’s administration employed the policy of saving money as contingency for future periods of low oil prices. However, since July 2013, Libya has been unable to produce oil at its maximum capacity. And in the last 12 months, oil prices have collapsed, forcing Libya to draw funds from its national reserves, which in December 2014 accounted for 76 billion dollars (Verda, 2015). An additional threat to oil production also comes from ethnic minorities within Libya seeking independence.

In August 2015, a bomb exploded in Tripoli in front of the Mellitah Oil Company’s (a NOC-Eni joint venture) headquarters. ISIS claimed responsibility for the attack, demonstrating once again its capacity for operating inside Tripoli. The company accounts for almost all natural gas exports and 30 percent of current oil production. Oilfields operated by AGOCO in Cyrenaica do not present particular risks, as Tobruq controls territories around Sarir and along the pipeline carrying oil to Marsa al Hariga and the port city is completely controlled by the internationally recognised government. Al Jurf and Bouri offshore fields enjoy high levels of security, as well as the offshore platforms used for exports. Onshore production in the west of the country comes from Wafa and El Feel, which are located in areas occupied by ethnic minorities. These fields are close to lucrative border routes, where criminal organizations manage the smuggling of weapons, drugs and illegal migrants (Geopolitical Review 2015: 11- 12). Pipelines connecting Wafa and El Feel to Mellitah pass through territories inhabited by rival tribes, Berber communities as well as active criminal networks. In addition, ISIS has already demonstrated its capacity to attack Tripoli - which is only 100 kilometres away from the Mellitah establishment - on numerous occasions.

Conclusion

Libya is currently entrenched by several destabilising elements. The oil sector presents an important source of stability, as maintaining high oil production levels allows the governments to provide better security, equip armed forces well and pay salaries without depleting national reserves. The capacity of Libyan institutions to overcome subversive forces largely depends on its military capabilities, as it is crucial for legitimate authorities to be better equipped than the armed groups seeking the dissolution of the Libyan state.

Offshore fields do not require additional security in general and the export of oil generated in the Sarir complex is exposed to a set of controlled risks: the pipeline carrying oil to Marsa al Hariga crosses areas controlled by Tobruq, and ISIS has already been defeated in Derna. It is therefore onshore oil production, predominantly in the west of the country, that is exposed to elevated risks. Wafa and El Feel are located in territories rife with illegal activities committed by criminal organisations, so ethnic minorities living close to these two oilfields and along pertinent transportation facilities might represent a destabilising factor, since they started opposing the state after national institutions rejected their demands in 2012. Tebus demanded the removal of all the discriminations they were subjected to while the Tuaregs and Berbers sought the right to preserve their languages. It is considered likely that these groups are now involved in illegal activities carried out in their areas (Kohl 2014: 433-436).

In the long run, Libyan authorities should restart the dialogue process with the ethnic communities in order to include them within the future political framework and secure their loyalty. The biggest threat currently is the ISIS, which has already attacked the Mellitah Oil Company in Tripoli. In the short run, national authorities in Tripolitania should implement high security measures in Mellitah, along the pipelines departing from El Feel and Wafa and prevent the ISIS from obtaining better military equipment by means of illegal trade and relations with criminal organisations.