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Spring Cleaning: Re-establishing Libya’s Successful Energy Sector

By: Filipe Carvalho

Libya’s potential to become a major energy source may be the key to helping fix its economy, and the country itself.

The Recent History of Energy Security

The rise in demand for oil and natural gas throughout the 20th century escalated the importance of energy in global affairs. Fuel exporters came to notice the inelastic demand for oil, and thus maintained low levels of production in order to hike up prices. Western powers, most notably the United States, became dependent on oil supplies coming in from Saudi Arabia, Qatar, Kuwait, and Libya, amongst other exporters. During the Cold War, the United States defended authoritarian middle-eastern regimes that provided the West with stable and affordable oil prices, leading to what analysts refer to as “Arab Exceptionalism.” However, the Western backing of Israel during the Yom Kippur War led to an oil embargo by the Organization of the Petroleum Exporting Countries (OPEC) in 1973. The 1973 oil embargo, as well as its 1979 successor, led to robust increases in oil prices. The economic shock was catastrophic and demonstrated the necessity of stable energy supplies. To counterbalance such threats from suppliers, and protect consumers, the International Energy Agency was created. The IEA, contrary to OPEC, defends consumers and assures emergency energy reserves are available in case of decreases in energy supply.

It has been decades since the 1973 oil embargo, yet energy security remains a sensitive issue. Recently, European liquefied natural gas (LNG) supplies have been threatened by unstable Russo-Ukrainian relations, caused by Moscow’s backing of Eastern Ukrainian separatists. Amidst tensions, Russia has threatened to sharply reduce gas exports to Europe, which could lead to an immense energy crisis in the continent. Iran remains under sanctions imposed in the United States and other Western powers, and its energy would not be a viable option for Europe. Iraq and Syria are struggling to deal with the threat of ISIL, and have been forced to employ military units to defend their petroleum pipelines and rigs. All over the world, would-be stable supplies of oil are in trouble.

A viable alternative for European consumers, whose main supplies face the aforementioned difficulties, is Libya. Libya has always enjoyed geopolitical advantages over other energy exporters. The North African nation holds the largest proven oil reserves in Africa, ranked at 9th in the world, and has the fourth largest proven natural gas reserves in Africa. Libya’s population of 6 million does not consume much energy – an average of 170,000 barrels of oil per day (bbl/d), while it produces 378,000 bbl/d from its five internal refineries – with this figure not including its offshore rigs. Lastly, Libya is right across the Mediterranean from the southern European energy market, reducing LNG and oil transportation costs.

The Arab Spring and Libyan Energy Exports

It cannot be denied that Libya currently faces its own internal conflicts, which are, at times, as violent and chaotic as the ones seen in Iraq and Eastern Ukraine. Since the start of the Arab Spring and the Libyan Civil War that deposed Muammar Gaddafi, the country’s reconstruction has been troublesome due to different demands from various religious and ethnic rebel groups. These groups have attempted to take control of the country’s energy infrastructure in order to inhibit and restrain other groups or government forces from exploiting these resources, as well as for their own financial advantage by selling energy on the black market. This has had extremely negative impacts on Libya’s energy market. Oil production fell to 250,000 bbl/d by December 2013, and led to a GDP contraction of 5.1% in the same year. To further hinder production, Petroleum Facilities Guards (PFGs) – many former rebels hired by the Ministry of Defense, have gone on strike requesting payment of salaries and better health care. Earlier in the year Libyan Navy also prevented a Maltese flagged ship from smuggling oil out of the country, indicating the vulnerability of energy security in Libya.

Current Prime Minister Abdullah el-Thani must be quick to address the issues his predecessor Ali Zeidan failed to solve, such as the demands by the various rebel groups participating in recent conflicts. Energy revenue redistribution is one of the main concerns brought up the Cyrenaican rebels, who demand equal share of revenues between the regions of Tripolitania, Fezzan and Cyrenaica. In late 2013, this group went as far as declaring regional independence by creating their own regional bureau and energy company. Zeidan, prime minister at the time, responded by ordering Libyan armed forces to fire at tankers heading to rebel-controlled ports; including the aforementioned incident with the Maltese tanker. Ethnic minorities have also actively participated in attacking Libya’s energy infrastructure. Berbers and Toubous minority groups have blocked the Nalut pipeline and Melitah oil and gas refineries, the latter being perhaps Libya’s most crucial location as it exports natural gas to Sicily using the Greenstream pipeline, previously managed by Libya’s National Oil Company (NOC) and Italy’s Eni. Many minority demands involve changing the provincial constitutions, which establish that decisions on minority rights are to be made by the majority and not by consensus, thus favoring Arabic groups and other majorities. Ethnic minorities also wish to gain rights such as health care, citizenship and the right to teach in their own languages.

Creating a stable and secure energy-exporting Libya

The implications of an unsafe energy industry in Libya reach beyond North Africa and Southern European energy markets. Between February and March of 2014, Citigroup reevaluated their estimated average 2014 Brent crude oil price from $93 to $103 per barrel, citing the Libyan conflict as the main cause for the possible rise in prices. The Libyan government must take immediate action in order to diminish internal conflict and increase its energy production, returning to its Gaddafi-era export quantities.

Whilst the Libyan government is under the threat of rebel groups and ethnic minority factions, it has the privilege of not being hostage to large radical groups like the Islamic State. Requests by minorities such as the Berbers and Toubous involve greater rights and can be answered through local political discussion. These minorities should be granted greater rights such as citizenship and health care. Decentralization of Tripoli’s powers is another main concern among these groups – changes through a federalist or institutional reform should be discussed and implemented.

When referring to Libya’s energy security and the capability of increasing its oil production to 1.3 million barrels per day, deputy minister for Oil and Gas Omar Ali Elshakmak stated that “clearly the security issue is the most important and as soon as this is under control we can achieve it [1.3 million bbl/d of production] within a few weeks.” Greater efforts are required in training not only the national military, but other internal security actors from within and outside the government, such as local police, private security personnel, political oversight institutions, and others who assist in maintaining the rule of law. It is known that full and effective development of such forces may take decades; in the meantime the national government must appease minorities and cooperate with municipalities, locals and tribe leaders in order to best secure and stabilize the country and its infrastructure.

Although conflicts in Libya remain constant, the country, once stable, will return to its privileged and advantageous energy situation. If properly managed, Libya can intensify its oil and LNG exports, creating profits for its state-owned oil company, which can be reinvested in its once considerably high standard of living. Although stabilizing the country is easier said than done, with appropriate leadership, discipline and moderation, Abdullah el-Thani’s government has the opportunity to diminish political dissent and reorganize Libya’s once powerful energy industry.

 

Filipe Carvalho is a third year student studying International Relations at the University of Toronto.

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