Libyan oil production halts in advance of talks to end civil war

By Salma El Wardany on 1/19/2020

CAIRO (Bloomberg) - Libya’s biggest oil field began to halt production after armed forces shut down a pipeline, compounding supply disruptions ahead of a conference that aims to broker an end to the OPEC nation’s civil war.

The Sharara field, which can pump 300,000 barrels a day, will stop producing once its storage tanks are full, a person familiar with the situation said. Libya’s oil production has already plummeted to the lowest level since September 2016, data compiled by Bloomberg show.

Libya’s output has plunged by about 800,000 barrels a day from 1.174 million since an eastern military commander, Khalifa Haftar, blocked exports at ports under his control, according to a statement on Saturday from the state-run National Oil Corp. The NOC declared force majeure, which can allow Libya -- home to Africa’s largest-proven oil reserves -- to legally suspend delivery contracts.

Members of the Petroleum Facilities Guard under the command of Haftar’s Libyan National Army shut down the Hamada-Zawiya oil pipeline, forcing the NOC to limit oil production at the Sharara and El Feel fields, according to an NOC statement. The Hamada station hosts pipelines for Mellitah Oil Co. and Akakus, the operators at El Feel and Sharara respectively, it said.

“This is a policy-related disruption,” said Edward Bell, director of commodity research at Dubai-based bank Emirates NBD PJSC. “There could be a pretty quick turnaround if there’s a political solution.”

Crude prices will probably jump in trading on Monday but not by as much as they did after the Sept. 14 attacks on Saudi Arabian oil facilities, Bell said. Libya has less production at stake than Saudi Arabia, and its difficulties are more contained than the Saudi crisis, which threatened to escalate into a regional war, he said. Brent crude rose 23 cents on Friday to end the week at $64.85 a barrel.

Haftar’s show of force comes as he prepares to attend an international conference in Berlin on Sunday hosted by German Chancellor Angela Merkel where the general will face pressure to agree to a cease-fire. Haftar, whose troops have been bogged down in the southern suburbs of the capital of Tripoli, has so far refused efforts to end his offensive and agree to a compromise.

By shutting down oil fields, Haftar is denying a key source of revenue to the internationally recognized government of Prime Minister Fayez al-Sarraj. Funds from oil production go to the country’s central bank, and the Tripoli government has them money to buy weapons for its defense.

Russian mercenaries have supported Haftar’s forces, according to officials who told Bloomberg. Egypt and the United Arab Emirates are also backing Haftar. Turkish soldiers are training forces loyal to Sarraj, and Turkish-backed Syrian rebels have also joined the fray.

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