(Bloomberg) -- Libya moved closer to reopening its battered oil industry after the state energy firm said it would resume exports, though only from fields and ports that are free of foreign mercenaries and other fighters.
The National Oil Corp. is ending force majeure -- a legal status protecting a party that can’t fulfill a contract for reasons beyond its control -- at “secure” facilities in the conflict-ridden nation and has told companies to resume production. The shutdown would continue elsewhere until militias leave, the NOC said in a statement Saturday.
Oil facilities have been at the heart of Libya’s civil war, now almost a decade old, with different groups closing or sabotaging them to press political and economic demands. Daily crude production slumped to less than 100,000 barrels in January from 1.1 million after Khalifa Haftar, a Russian-backed commander who controls eastern Libya, blockaded energy infrastructure.
Output will probably increase to 550,000 barrels a day by the end of 2020 and to almost a million by the middle of next year, according to forecasts from Goldman Sachs Group Inc.
Some firms that use or operate the OPEC member’s eastern ports announced they were restarting work. Among them were Arabian Gulf Oil Co., which can produce almost 300,000 barrels a day and exports them from Hariga port, and Sirte Oil & Gas Production and Processing Co., which runs the Brega terminal.
But other major fields have yet to restart. They include Sharara, the country’s largest deposit, according to a person familiar with the matter. The southwestern field was occupied by mercenaries from Russia’s Wagner group earlier this year and it was unclear if they had agreed to leave.
The NOC said last week it would be dangerous to start pumping oil again with armed forces in close proximity. It is assessing security at different fields and receiving reports from all facilities, the person said.
“From a logistical perspective, exports could restart immediately, as the NOC’s crude inventories are elevated,” Goldman analysts including Damien Courvalin said in a note Sunday. “Beyond destocking, however, the increase in field production is likely to take time.”
Force majeure “continues in fields and ports where the presence of fighters from Wagner and other armed groups that hinder activities and operations is confirmed,” the NOC said.
The NOC’s announcement came after Haftar said on Friday he would lift a blockade his forces imposed on fields and ports in January.
Haftar, who is also backed by Egypt and the United Arab Emirates, said his move was conditional on oil revenue being shared more evenly between the eastern administration and the United Nations-recognized government based in Tripoli, the capital, in the west.
The general spoke after an accord last week with Ahmed Maiteeq, deputy prime minister of the Tripoli government, at a meeting in Russia. Prime Minister Fayez al-Sarraj has yet to accept the agreement, casting further doubt on any imminent resumption of oil production.
Any additional supplies from Libya would enter the market at a time when OPEC+ -- a grouping of the Organization of Petroleum Exporting Countries and others such as Russia -- is curbing output to bolster oil prices. Brent crude has fallen more than 5% this month to $42.90 a barrel, extending its coronavirus-induced loss in 2020 to 35%.
Libya, home to Africa’s largest oil reserves, was exempt from the OPEC+ cuts, first agreed in April, because of its strife.
Its energy infrastructure is crumbling after almost 10 years of conflict and chaos following the ouster of former dictator Muammar Qaddafi in 2011. NOC Chairman Mustafa Sanalla told Bloomberg in June that it would cost more than $100 million to fix wellheads alone. The lack of basic, nuts-and-bolts servicing has left pipelines corroding and storage tanks collapsing.
“The restart is likely to be hampered by damages to productive capacity,” the Goldman analysts said.
(Updates with analyst forecast in fourth paragraph.)
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