Bringing peace to Libya will lead to significant economic gains

Rashid Khashana – The rule of the militias in Libya made them dare to close oil fields and disrupt export ports, which constituted an echo of the political crisis that has been ongoing since 2014. Oil experts believe that the internal conflicts, coupled with the sector’s inability to obtain the necessary financing to repair the wells, are causing the country great losses. According to a report issued by OPEC, each closure costs the sector losses estimated at between 50 and 60 million dollars per day for each day of closure.

However, despite the difficulties facing the Libyan oil and gas sector, due to the erosion of the production infrastructure, the National Oil Corporation and the Italian group Eni reached an agreement to produce $8 billion worth of natural gas. This deal, which was concluded by the two sides on the occasion of the visit of an Italian delegation to Tripoli, led by Prime Minister Giorgia Meloni, is considered the largest investment project in Libya in a quarter of a century. The deal indicates Rome’s keenness to diversify its partners in the energy field, to break free from the grip of Russian gas. In this context, the Italians turned to Libya, in addition to Algeria. However, some experts doubt Libya’s ability to fulfill its obligations and warn of the repercussions of political instability on economic conditions. Among these experts is Libyan Oil Minister Mohammed Aoun, who described the deal as “illegitimate.”
On the other hand, Algeria appears to be a partner that enjoys credibility and trust among European customers, as it supplies Italy with about 24 billion cubic meters of gas annually, while Libya will not be able to export more than 3 billion cubic meters, because the production and export structure has not been renewed for more than two decades. . In addition, Italy is now playing a key role in re-exporting natural gas to Europe, at a time when Europeans are seeking to find alternatives to Russian gas. But in all cases, the agreement with the Italian group will help increase the share of the local (Libyan) gas market, in addition to exports, based on two new offshore wells, in which production will start in 2026 if there are no security complications or political disruption that threaten stability.
The Libyans hope that the agreement with the Italians will allow attracting large investments to the energy sector and creating new job opportunities, which prompted the head of the Eni Group, Claudio Descalzi, to say that his group now occupies the first rank among companies operating in Libya, stressing that the existing oil and gas partnership between the two countries It is based on solid cooperation, embodied by the “Green Stream” pipeline linking the gas fields in western Libya and the coast of the island of Sicily. The capacity of the pipeline, which entered the production stage in 2004, is estimated at no less than 11 billion cubic meters of gas annually. However, the chaos that followed the overthrow of the previous regime in 2011 caused a decline in the quantities of gas directed to the Italian market. Analysts agree that the postponement of the presidential elections, which were scheduled to be held in December 2021, dealt a severe blow to the oil and gas sector, due to the weakness of the state and the fragility of the security conditions.

Algeria is in first place

On the other hand, Algeria advanced to first place among Italy’s Maghreb partners and its main gas supplier. The Italians are also betting on the potential of importing gas from Egypt, the Republic of the Congo, Angola and Mozambique. As for Italy, whose economy was dependent on oil and gas imports from Russia, it reduced those imports by two-thirds, that is, it reduced them to 11 billion cubic meters per year, and then turned to new producers. What’s more, the Italians plan to eliminate Russia from their imports of energy products next year. In this regard, Descalzi says that Algeria, which has a production capacity of 36 billion cubic metres, has compensated for an important part of Russia’s share. Descalzi expressed his hope that Libya would also compensate for another portion, albeit of a smaller size, of Italian imports from Russia. Moreover, Rome aspires to play the role of a bridge between gas producers in North Africa and the countries of Northern Europe, and it hopes to establish an energy crossing that connects Maghreb gas to Germany, Austria, and Switzerland.
European countries in general showed a strong desire to develop the gas sector in offshore fields, especially liquefied gas, abandoning traditional projects of extracting crude from their fields on the African continent. It considers these offshore fields less vulnerable to security risks. In this context, major companies such as ExneMobil, Eni, Shall, and Shafran abandoned their traditional fields in Nigeria, Angola, and Equatorial Guinea last year.

New producers

Oil investors are currently turning to countries believed to be rich in gas resources, including Mozambique, Mauritania, Senegal and Tanzania, in the hope that they will compensate for the European gas deficit. Libya could be among this group, were it not for the prevailing instability, the scarcity of investments that the country attracts in its current situation, and the increasing internal demand for gas. Last year, its exports to Italy did not exceed 2.63 billion cubic meters, while before 2011 they amounted to no less than 8 billion cubic metres. cubic per year.
The announcement of the establishment of a parallel government headed by Fathi Bashagha, last February, with the recommendation of the House of Representatives, represented a deepening of the division between East and West, which was clearly revealed when the agreement was reached between the Eni group and the Libyan government, as the Minister of Oil and Gas opposed the agreement. Muhammad Aoun, who did not attend the signing ceremony of the agreement, considering that the ministry was responsible for signing it, not the National Oil Corporation. The House of Representatives also refused to name Farhat bin Ghaddara as head of the “Oil Corporation” in place of Mustafa Sanallah, and it was reported that this was done according to a deal between the head of the unity government, Al-Dabaiba, and the military commander of the eastern region, Major General Khalifa Haftar.
Beyond that, oil experts reported that the competition between two governments, one based in the capital, Tripoli, and the other in the city of Sirte (north-central), led to the closure of some oil and gas facilities, which hindered the growth of the sector. According to estimates by the World Bank, the decline in oil revenues due to the closure of some facilities cost a loss estimated at about 4 billion dollars.

Huge reserve?

However, experts believe that Libya can strengthen its position in the international market as an important gas producer, but this requires a plan to develop its infrastructure and open the door to more inspection and exploration work. According to information from the Production Department of the Gulf Oil Company (public sector), Libya has a huge reserve of natural gas that has not been explored to date. The National Oil Corporation recently unveiled a strategy that includes an increase in gas production to reach 3.5 billion cubic feet per day by 2024, at a cost of around $60 billion from the government budget, with the rest provided by investors from international oil groups. International groups anticipated the results of the Russian-Ukrainian war and began negotiations with the National Oil Corporation in Libya, to discuss the possibility of increasing Libyan supplies of gas to European countries.
In this context, it was agreed between the former President of the Corporation, Mustafa Sanalla, and the Executive Vice President of the British Petroleum Group, Gordon Pearl, to resume exploration work in Libya, in accordance with an agreement reached by the two parties in 2018. Sanalla also discussed this matter with the CEO of the Total Group. Patrick Boigny last March, when they discussed developing production and increasing its volume through gas and oil exploration. Sanalla also discussed the issue with the Italian Eni group, in order to ensure its contribution to increasing production in order to respond to the increased demand for gas in the international market. Achieving this goal requires establishing security and establishing stability throughout the country, not only to raise production levels, but also to ensure the continuity of the flow. In this direction, last March, the International Monetary Fund presented a picture of the sector’s growth, stating that hydrocarbons are expected to grow by approximately 15 percent during the current year. A new study issued by the United Nations Economic and Social Commission for Western Asia (ESCWA) showed that bringing peace to Libya would lead to achieving significant economic gains, not only for Libyans, but also for neighboring countries, with a total value reaching $162 billion until the year 2025. The study stressed that The title, “Peace in Libya: Benefits for Neighboring Countries and the World,” emphasizes the importance of the recent positive developments witnessed by Libya, which will translate into a rise in economic growth rates, an increase in investments, and the provision of job opportunities within Libya and in neighboring countries, especially Egypt, Tunisia, and Sudan. According to the study, the establishment of peace will also launch reconstruction efforts, which will give an impetus to the Libyan economy and neighboring economies. ESCWA previously issued a study entitled “The Economic Cost of the Conflict in Libya,” in which it warned of the worsening economic losses caused by the war over a period of 12 years, after the overthrow of Muammar Gaddafi (1969-2011) and the dismantling of his regime. Will the Libyan leaders rise above their rivalries and open the way for infrastructure, transportation and communications reform projects, in a way that turns the page on the civil war that has weakened the country and exhausted its people for years?

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