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Libya's NOC lifts force majeure on oil as Hess set to ship first crude export

Increase font size  Decrease font size Date:2020-09-23   Views:25
Libya's state-owned National Oil Corp. said Sept. 19 it had lifted force majeure on oil fields and ports, excluding facilities where militants are still present, a day after the Libyan National Army announced an end to an eight-month oil blockade.

"Force majeure still remains in oil fields and ports where it has been confirmed that the presence of members of Wagner gangs and other armed militants impede the activities and operations of National Oil Corp.," NOC said in a statement on its website. Wagner refers to Russia's Wagner Group, a private military organization.
LNA leader Khalifa Haftar said Sept. 18 in a public broadcast that a blockade on oil exports in place since Jan. 18 would be lifted immediately, allowing for the potential return of up to 1.1 million b/d that Libya was pumping before the embargo and the release of crude in storage. The OPEC producer was pumping around 120,000 b/d before the lifting of the force majeure.

The Minerva Eleonara is set to be the first oil tanker to leave Libya with crude since the force majeure on some ports was lifted on Sept. 19, according to data analytics firm Kpler.

The vessel will load almost 700,000 barrels of crude, destined for Europe on Oct. 4, after leaving from Es Sider port, the data showed. NOC sold the crude to Hess, according to the data. The Minerva Eleonara as of Sept. 20 still hadn't approached the berth at Es Sider by mid-day in Dubai, according to Kpler.

Fair distribution
An agreement between the self-styled LNA and the rival UN-backed Government of National Accord that led to the end of the oil blockade had "conditions and guarantees that ensure a fair distribution of wealth and spare it being plundered or used in terrorism financing," Haftar said.

The conflict between the GNA, which is supported by Turkey and Qatar, and the LNA, based in the east and backed by Russia, Egypt, the UAE and Saudi Arabia, has hit the country's oil industry and led to $10 billion losses in oil revenue, according to NOC estimates.

On Jan. 18, eastern tribes supported by the LNA halted exports from five oil terminals, sharply reducing the country's crude production, which hit the lowest level since the 2011 civil war.

The force majeure was on crude loadings at terminals in Brega, Es Sider , Marsa el-Hariga, Ras Lanuf and Zueitina.

Oil revenue
The distribution of oil revenue has been at the heart of the blockade. The LNA has previously named three conditions to lift the blockade: opening a special bank account for oil revenue in an unnamed country outside Libya for equitable distribution of oil revenue; preventing oil revenue from funding "terrorism and mercenaries," and auditing central bank oil revenue accounts over the past years.

Haftar controls the bulk of Libya's key oil infrastructure, but does not have access to oil revenue via the Central Bank of Libya. Neither does he hold the reins of NOC.

Libya holds Africa 's largest proven reserves of oil and its main light sweet Es Sider and Sharara export crudes yield a large proportion of gasoline and middle distillates, making them popular with refineries in the Mediterranean and northwest Europe.

Mike Muller, director of oil business development and head of trading at Vitol Asia, said the resumption of oil exports is not so certain due to the conflict between the LNA and GNA and the continued presence of militants at oil facilities.

"We have seen this talk of force majeures being lifted many, many times before," Muller told a Gulf Intelligence webinar on Sept. 20. "For as long as the key facilities both producing in the desert and the ports are occupied by mercenaries and forces that are not aligned with the GNA, it is not a given that this means we're going to see production in Libya go from less than 100,000 to more than 1.2 million b/d."

OPEC+ pact
The return of a potential 1.1 million b/d of Libyan crude to the market would complicate the OPEC+ coalition's attempt to balancing an oil market still awash with oil and prices that are hovering around $40/b.

OPEC+ is currently in the midst of trimming its output by 7.7 million b/d, down from its historic 9.7 million b/d cut implemented May through July. Libya is exempt from output cuts.

The coalition is struggling to force members to adhere to their production limits, with a number of major producers flouting their quotas in August.

Saudi energy minister Prince Abdulaziz bin Salman delivered a stern warning to OPEC+ compliance laggards, saying at a Sept. 17 monitoring committee meeting that failing to execute pledged production cuts was undermining the alliance's efforts to rebalance the oil market.

Collective compliance was 101% in August, but not all members shared the burden equally, and any countries that overproduced their quotas must make extra "compensation cuts" of an equivalent volume in subsequent months.

In all, countries that exceeded their quotas from May-August have a cumulative 2.375 million b/d of compensation cuts due, according to a technical committee report seen by S&P Global Platts.
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