The North African country appears to be drawing interest from several major IOCs, but the impending presidential election could spark enough turmoil to prevent a new wave of investment

 

WHAT: Following TotalEnergies’ new agreements on Waha and Eni’s show of interest in Libya’s domestic gas market, Shell is rumoured to be considering a new project.

WHY: The investment climate is looking shaky in the run-up to the December 24 presidential election.

WHAT NEXT: Pre- and post-election unrest could lead IOCs to postpone projects.

 

There has been some good news coming out of Libya lately, in that several international oil companies (IOCs) have shown interest in new projects or in expanding existing schemes to include natural gas, gas-to-power and renewable energy components, as well as crude oil production and exports.

TotalEnergies (France), for example, revealed late last month that it had signed a package of agreements worth more than $2bn with the Government of National Unity (GNU). Under those agreements, the French major will increase its equity stake in the Waha oilfields from 16.33% to 20.41%, raise the fields’ production capacity, install a gas gathering network in order to reduce associated gas flaring, establish 500 MW of solar generating capacity and provide electric power to local communities and industrial facilities.

Around the same time, Eni (Italy) indicated that it saw Libya itself as a growth market for gas. Speaking at the Libya Energy & Economic Summit in Tripoli on November 22, the Italian major’s COO Alessandro Puliti said: “In the past years, we have [shifted] increasing shares of gas production from export to the domestic market to fulfil domestic market demand. This clearly demonstrates the utmost attention we have paid to the economic and industrial development of Libya.”

Since then, Reuters has reported that UK-based Shell (formerly Royal Dutch Shell) was considering a return to the North African state. Two sources told the news agency at the end of November that the international major was looking into proposals for coming back to Libya to develop oil, gas and solar resources. The sources did not say whether Shell was eyeing any specific projects, but Reuters noted that the company had exited Libya about 10 years ago in response to the turmoil that erupted following the ouster of the country’s long-time ruler, Moammar Qaddafi.

Political challenges

At the same time, these positive developments have been paired with uneasy speculation about Libya’s upcoming presidential elections.

The country is scheduled to hold the vote on December 24, in line with the terms of the ceasefire agreement accepted by the factions within the GNU. However, there have been calls for a delay, as legal disputes have prevented the national election commission from finalising its list of candidates for the presidency. (One of these disputes concerned Saif al-Islam Qaddafi, one of Moammar Qaddafi’s sons, whose candidacy was recently reinstated after first being disqualified.)

Even if there were no such disputes, the race is not likely to have a clear winner. To date, more than 100 people have announced plans to run for the presidency, and two of the best-known candidates are quite controversial. For instance, Prime Minister Abdul Hamid Dbeibah has put his name forward, even though he pledged when taking the helm of the GNU that he would not try for the presidency. Khalifa Haftar, the leader of the Libyan National Army (LNA), is also standing for election, although he has no hope of securing enough votes outside Libya’s southern and eastern regions to gain control of the entire country.

Under these circumstances, Libya may experience violent unrest in the run-up to the elections. There are multiple reasons why this might happen. Armed factions could start shooting at each other again, as was the case in the southern city of Sabha on December 13, when local security forces found themselves in a firefight with LNA fighters. Popular discontent over postponement of the elections, failure to finalise the presidential candidate list or last-minute disqualification of candidates could lead to demonstrations and clashes with security forces.

Problems past, present and future

Martin Sherriff, head of the Middle East-North Africa (MENA) group at Welligence Energy Analytics, highlighted some of these problems in a message to NewsBase.

“Planned elections in the country are close to collapse, which could shatter hopes [of] re-uniting the divided country,” he wrote. “Further conflict could reignite following the ceasefire in 2020, as rival factions have accused each other of bribing and intimidating officials to reinstate their candidates, which include high-profile figures such as warlord Khalifa Haftar and Saif al-Islam Qaddafi, the son of the former dictator.”

Sherriff also pointed out that oil and gas sometimes attracted negative attention, even in the absence of controversy over elections. “Although NOC oilfields are normally the first to be targeted by militia, any high-profile project is at risk from being attacked,” he commented. “Throughout 2019 and 2020, oilfields were repeatedly shut in following attacks from armed groups and Russian mercenaries backing the Libyan National Army (LNA) led by Khalifa Haftar.”

According to Hamish Kinnear, a Middle East and North Africa analyst for Verisk Maplecroft, Libya’s oil and gas industry is also at risk because disputes over the results of the upcoming presidential vote could trigger fighting afterwards. “A ceasefire remains in place for now, but war could resume if the results of planned elections are disputed,” he told NewsBase. “LNA could apply pressure to Tripoli-based rivals by shutting down Libya’s oil and gas production, a lifeline for the country’s economy.”

Kinnear also drew attention to the implications of LNA’s dominance in areas that are key to the functioning of Libya’s oil industry, saying: “Between 2011 and 2019, the main risk to oil and gas production (and to a lesser extent power plants and refineries) was shut-ins by a range of militia groups. The Libyan National Army (LNA) consolidated its control of most of Libya’s oil and gas infrastructure by late 2019 and random shut-ins became rarer. The flipside of this is that LNA can choose to impose a near-nationwide blockade on oil and gas exports if it chooses to. LNA did exactly that in 2020 as a response to increasing Turkish involvement in Libya.”

Wait and see

In these conditions, it is far from clear that Libya’s oil, gas and power industry is on the verge of attracting a massive new wave of investment.

Certainly, IOCs are hardly likely to ignore Libya, given the size of the North African country’s existing hydrocarbon reserves – and its potential for future solar generation. However, they may want to wait and see what happens after the elections before making any new large-scale commitments.

As Kinnear noted, “exploration ... is still [being] held back by the precarious political and security situation in the country.”

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