Libya forced to cut oil production due to lack of finance

Sirte Oil Co has announced that it will have to cut up to 100,000 barrels per day of production
Atalayar_Libia Repsol

REUTERS/ISMAI ZITOUNY  -   General view of the Al-Sharara oil field

Although the situation in Libya seems to be stabilising, there is still plenty of room for recovery. The civil conflict coupled with the COVID-19 crisis, with the corresponding drop in oil prices and exports - the country's main asset - has brought the African country to the brink of the abyss.

Indeed, Libya's budget crisis threatens to derail the operations of Sirte Oil Co. (SOC), one of the state-owned oil producers. The company has announced that it will have to cut up to 100,000 barrels per day of production this week. In a statement to parent company National Oil Corp. (NOC), the subsidiary explains that it will be forced to "reduce production and stop production completely within 72 hours".

Sirte Oil is the second Libyan company to reduce production.  Arabian Gulf Oil Co. also cut production by about 90 per cent, or 280,000 barrels per day, due to a lack of funds to maintain fields and pipelines.

Atalayar_Refinería de petróleo en la ciudad norteña de Libia de Ras Lanuf
PHOTO/AFP - Oil refinery in Libya's northern city of Ras Lanuf

Company chairman Masoud Mahmoud said the company was unable to meet its obligations to contractors, debts were mounting and there was a shortage of spare parts. The chairman of NOC's parent company, Mustafa Sanalla, met with Libya's oil minister, Mohamed Oun, on 21 April to present this critical situation to him and to obtain more liquidity.

Sanalla, during his meeting with the minister, explained that production had fallen to 1 million bpd in recent days, from 1.3 million bpd, and was likely to fall further. The NOC chairman also cited problems in supplying the domestic fuel market, given this budget shortfall. Adding to this crisis is the complex situation in the country, with fighting on the outskirts of Tripoli destroying fuel depots in 2020.

Atalaya_Planta petrolera en Libia
PHOTO/REUTERS - General view of pipelines at the Zueitina oil terminal, west of Benghazi

What we expect now from the oil ministry is that it will work to help us get the necessary budgets," Sanalla said. If the money is not forthcoming, "unfortunately the situation will deteriorate".

Although Libya has reached a political ceasefire agreement, differences of opinion remain between the centres of power in the east and west of the country. The eastern-based House of Representatives has refused to approve the budget, which would free up funds for the NOC.

For its part, the United Nations Support Mission in Libya (UNSMIL) issued a statement on 21 April calling on the House of Representatives to "swiftly pass" the unified budget. UNSMIL pointed to problems in the energy sector and oil production.