Libya May Labor to Find New Investors

Libya plans to open its upstream sector again to international oil companies (IOCs) in a bid to hit production targets of 2.1 million barrels per day of oil and 4.1 billion cubic feet per day of natural gas over the next five years. But oil and gas markets have changed dramatically since 2013, when Tripoli first considered an upstream auction. IOCs are grappling with the energy transition, which has cast doubts about future oil and gas demand and put pressure on them to decarbonize. Libya still has its selling points -- low extraction costs, existing infrastructure, and proximity to markets -- but Tripoli could find that marketing Libya’s upstream is more challenging than in the past. Mustafa Sanalla, head of National Oil Corp. (NOC), told a Libyan British Business Council webinar in early June that “foreign investors are crucial” and the Libyan state firm was updating its exploration and production sharing agreement (EPSA) to a new "EPSA V" contract ahead of a future bid licensing round. Cost recovery, investor returns, and exploration and development periods are all up for discussion. IOCs are currently locked into the stringent EPSA IV model, which gives Tripoli a roughly 88% take. NOC is working with the US Department of Energy on the potential opening and will open a new London office focusing on engineering partnerships and asset integrity later this month. A new UN-backed unity government is in place and a cease-fire is holding in Libya, spurring hopes that an upcoming peace conference on Jun. 23 in Berlin can lead to a lasting political settlement and economic reconstruction. But political risk and security concerns remain serious barriers to investment in Libya. For IOCs seeking opportunities in the broader Middle East, Libya must also compete with offerings in other producing nations, such as gas-prolific acreage offshore Egypt and the industry’s biggest prize -- a stake in Qatar’s LNG expansion (PIW Apr.23'21). The United Arab Emirates and Saudi Arabia are also pushing gas expansion plans, while any revived nuclear deal with Iran could see another upstream opening (PIW Jun.11'21). Geopolitical risk remains significant in Libya. The interference of foreign powers in the country persists while the bulk of foreign mercenaries remain despite a UN order to leave. Even so, TotalEnergies, Eni and OMV have seized on Libyan opportunities throughout the conflict. Total bought a 16.33% stake from US Marathon in the Waha concession in 2018, committing last November to invest $650 million to boost overall output from the concession to around 530,000 barrels of oil equivalent per day. OMV bought Occidental's 75% second-party share in Blocks C103, NC29/74, C102 and Nafoora Augila in 2017. Eni agreed with BP in October 2018 to take operatorship of three contract areas -- two permits in the onshore Ghadames Basin and one in the offshore Sirte Basin. Libya’s low-cost oil could still prove attractive to some IOCs that see the potential for a supply crunch in coming years due to recent weak upstream investment (PIW Jun.11'21). Privately-owned international commodity traders, which face less decarbonization pressure than publicly listed IOCs, could also participate. Glencore told Energy Intelligence in 2017 that it would consider financing opportunities in Libya’s tankage, pipelines and export infrastructure (PIW Oct.30'17). The key question for IOCs will be how they can balance new investments in Libya's upstream with decarbonization plans over the next decade (PIW Jul.31'20). The costly reconstruction of Libya’s oil and gas sector could be another deterrent for some investors. Oil fields, pipelines, storage tanks and power plants all urgently need rehabilitation, with the bill running to billions of dollars. NOC's inability to secure annual investment budgets from Tripoli in recent years amid political infighting and an economy in free fall is also a red flag. Insisting that the state firm was seeking win-win partnerships with investors, Sanalla concedes that “NOC faces tremendous challenges.” NOC wants to rehabilitate the Mabruk, Ghani, Dahra and south Waha fields in the eastern Sirte Basin to a combined production rate of 94,000 b/d of oil and 3.5 million cubic meters per day of gas by 2024. It plans to replace nine damaged storage tanks at the eastern Ras Lanuf terminal, two more at the adjacent port of Es Sider, and a tank at the giant Messla oil field. Major pipelines also need replacing across all main NOC subsidiaries. NOC Production Enhancement Program, 2019-24 Company Field Scope Capacity Budget