Libya's $60 Billion in Lost Oil Highlights Risk of Failed State

  • National Oil urges rival factions to form unity government
  • Islamic State caused `tremendous' damage to oil facilities

Libya’s rival political factions must quickly form a unity government to stop the country with Africa’s largest oil reserves from collapsing into a “failed state,” National Oil Corp. Chairman Mustafa Sanalla said.   

Libya has lost $60 billion in production and exports as a result of disruptions at oil ports and fields over the last three years, and attacks by Islamic State militants have caused “tremendous” damage to the oil industry in the last two weeks, Sanalla said in an e-mailed statement. 

“Their objective is to prevent the new government from stabilizing the economy,” he said of the militants. “They are not trying to occupy oil facilities, only to disable them. Their attacks have been very targeted, and they have managed to achieve a considerable level of damage with very few people. We should expect more such attacks.”

Libya produced about 1.6 million barrels a day of crude before the 2011 rebellion that ended Moammar Al Qaddafi’s 42-year rule. It’s now the smallest producer in the Organization of Petroleum Exporting Countries, pumping 362,000 barrels a day, Sanalla said Monday in an in interview in London. Since Qaddafi’s ouster and death, Libya has split into two separately run regions, one in the west and an internationally recognized government in the east. Various armed militias also compete for control of oil facilities.

Dueling Administrations

The National Oil Corp. in the west, headed by Sanalla, is recognized by traders such as Glencore Plc and Vitol Group as the official marketer of Libyan oil. The eastern government has set up a separate NOC administration, which represents Libya in matters relating to oil including OPEC. Representatives of the nation’s two dueling administrations took a tentative step toward easing the turmoil when they agreed on Jan. 19 to form a 32-member cabinet, in talks backed by the United Nations. 

However, the eastern government’s parliament voted to reject the proposed unity cabinet, Esam al-Jihani, a member of the eastern House of Representatives, said Monday from the city of Benghazi. The parliament was concerned that the cabinet contained too many ministers, he said.

“Without a single government, there will be neither security nor stability,” Sanalla said in the statement. “Extremists will step into the vacuum, and Libya will decline further to lawlessness and chaos.”

Biggest Port

The Petroleum Facilities Guard, a force loyal to the government in eastern Libya, has failed to protect the nation’s oil facilities, and attacks by militants have cost the country more than half of its storage capacity for oil, he said. The NOC could double production within days if the petroleum guard “left us in peace,” Sanalla said in the interview. 

The company is currently exporting 260,000 barrels a day, and it expects the loss of storage capacity at the oil ports of Es Sider and Ras Lanuf to curb future shipments, he said. Islamic State fighters attacked storage tanks in Es Sider, Libya’s biggest oil port, and nearby Ras Lanuf earlier this month. Both terminals have been closed to oil exports since December 2014.

The NOC has also lost 100,000 barrels a day of capacity due to disuse at the El Feel, or Elephant, and Sharara oil fields, he said. 

The company plans to sit down “soon” for talks with international oil companies, Sanalla said.

“The international oil community has remained patient and supportive of Libya and the National Oil Corporation,” he said. “We must act now to repay that trust, by creating a safe environment for all to operate under. This can only be achieved through a unity government.”

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