Libya Reopens Biggest Oil Field, Giving OPEC+ a New Headache

(Bloomberg) - Libya has taken an important step towards revitalizing its ailing oil industry by reopening its largest field and creating new headaches for OPEC + as the big producer alliance tries to stem global supplies.
National Oil Corp., Libya's state-owned energy company, picked up force majeure on the western Sharara deposit and ordered its operator to resume production, a statement said Sunday. The field will initially pump 40,000 barrels of crude oil per day before reaching its capacity of nearly 300,000 barrels next week, said a person aware of the situation.
This would double total production in Libya to around 600,000 barrels a day, said the person who asked not to be identified because they are not authorized to speak to media.
Sharara crude oil has started reaching storage tanks at Zawiya port, another person said.
The reopening of Sharara follows a ceasefire in Libya's longstanding civil war, which has already resulted in many oil fields and ports in the east being operational since January after being almost completely closed.
The NOC made no mention of the nearby El Feel or Elephant deposit in Arabic. The 70,000-barrel-a-day field typically follows Sharara's shutdowns and restarts as it relies on electricity from its larger neighbor to operate.
Headwind for OPEC
Libya is an OPEC + member and home to the largest crude oil reserves in Africa. However, it is exempt from the group's supply cuts, which began in May when the coronavirus pandemic choked economies and fueled oil prices. The alliance, led by Saudi Arabia and Russia, planned to loosen the curbs by 2 million barrels a day from early 2021.
With virus cases on the rise in many countries, the cartel faces a difficult decision at its next political meeting from November 30th to December 30th. 1: whether to stay on course or delay the increase in production. The price of crude oil on the Brent benchmark has more than doubled since May to around $ 42.25 a barrel, but it's still down 36% this year.
"The Libyan oil restart is gaining momentum faster than most people expect," said Bill Farren-Price, director of energy analysis company Enverus. The likelihood of more Libyan exports is "an additional headwind for OPEC at a time when it is already struggling with weaker than expected demand as the second wave of Covid-19 intensifies."
JPMorgan Chase & Co. predicts production will increase to 1 million barrels a day by March.
Even so, the North African nation's energy infrastructure is crumbling after nearly 10 years of conflict and chaos following the overthrow of former dictator Muammar Qaddafi in 2011. Frequent stoppages and poor maintenance of nuts and bolts have led to pipelines corroding and storage tanks collapsing. NOC chairman Mustafa Sanalla told Bloomberg in June that well head repairs alone would cost more than $ 100 million, which would limit the country's ability to ramp up production quickly.
Force majeure is a legal status that protects a party who is unable to perform a contract for reasons beyond their control. Sharara is run as a joint venture between the NOC, the French Total SE, the Spanish Repsol SA, the Austrian OMV AG and the Norwegian Equinor ASA.
The NOC, based in the Libyan capital Tripoli, said it had a "gentlemen's agreement" with militias known as the Petroleum Facilities Guard, which were active in the vicinity of Sharara. The militia have an obligation to "remove any obstacle" that hinders operations in the field, the NOC said. It did so after talks by the United Nations in Egypt earlier this month, some of which concerned restoring security to Libyan oil factories.
Libya produced 1.2 million barrels a day last year. Khalifa Haftar, a Russian-backed commander who controls much of the east, blocked ports and fields in mid-January when he tried to overthrow the United Nations-backed government in Tripoli. This resulted in production dropping to less than 100,000 barrels a day, most of it from offshore fields.
(Updates from the fifth paragraph with details on the el-Feel oil field.)
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