Talks under way for possible restart of 2 Libyan fields

Talks are under way to restart production at two key oil fields in western Libya, but the ongoing military conflict in the country could undermine the attempt.

State-owned oil firm NOC is negotiating with tribal factions to reopen a valve at Rayana, a town on the northern pipeline route leading from the 300,000 b/d El Sharara field to Zawia on Libya's Mediterranean coast, according to Libya-based sources. The valve closure has halted output at El Sharara and the neighbouring 130,000 b/d El Feel field since late January.

Local factions closed the valve under the instruction of Khalifa Haftar's Libyan National Army (LNA), which has been fighting a 13-month battle to wrest control of the capital city Tripoli from the UN-backed Government of National Accord (GNA). Nationwide blockades of Libya's onshore oil infrastructure, ordered by Haftar, have reduced the country's overall crude output to just 80,000 b/d from offshore fields, down from 1.1mn b/d in December, according to Argus estimates.

A restart at El Sharara is unlikely until after the end of the Eid al-Fitr celebrations on 23-24 May, with one trading source flagging 10 June as a potential date. But if output does resume, forces allied to Haftar would still be able to interrupt flows from the field, according to two Libyan sources. Spanish integrated firm Repsol, which operates El Sharara, has yet to respond to a request for comment.

El Sharara production has ramped up to near capacity within weeks following past shutdowns, and one trading source said a restart would likely lead to the resumption of Esharara grade crude exports. Output from El Sharara is typically prioritised for the 120,000 b/d Zawia refinery and the rest is exported. The refinery has been shut since 8 February because of a lack of feedstock.

Esharara is usually Libya's second-largest crude export stream, with shipments of 172,000 b/d in 2019, according to Argus tracking data. El Feel's output is mixed with Wafa condensate to make the Mellitah crude blend, with 85,000 b/d exported last year.

Back in early March, NOC chairman Mustafa Sanalla said he was "optimistic" that Libyan about would recover to nearly 1mn b/d in the short term, adding that the company was in negotiations with parties "inside and outside" Libya.

Haftar has been holding the majority of Libya's onshore oil fields and facilities as leverage since January. NOC's potential success at restarting El Sharara and El Feel is unlikely to be replicated in the east of the country, where most of Libya's oil fields and terminals are located and are now under the direct control of the LNA.

Haftar appears unlikely to relinquish his campaign for Tripoli in the short term, after declaring last month that he has a "people's mandate" to govern the country. But he suffered a heavy military loss on 18 May, when the GNA recaptured the strategic al-Watiya airbase.

NOC has repeatedly asserted its neutrality in the conflict, and the UN Support Mission in Libya (UNSMIL) said on 6 May that the company "must be allowed to remain an impartial actor in the provision of fuel to all Libyans, regardless of geography or affiliation". But company staff have still been taken hostage during the conflict, and rocket attacks damaged 10 of the firm's jet fuel storage tanks near the Mitiga airport in Tripoli earlier this month.

By Ruxandra Iordache