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New trouble sends Libya's oil production nosediving again

Feb. 27, 2014 at 7:35 AM   |   Comments

TRIPOLI, Libya, Feb. 27 (UPI) -- Libya's oil production has tumbled to about 230,000 barrels per day after armed groups shut down the el-Sharara oil field in the Murzuq desert in the southwest, adding to a crippling seven-month oil crisis centered in the rebellious east.

The shutdown of el-Sharara, one of Libya's biggest fields with a normal output of 340,000 bpd, was a serious setback to efforts by the problem-plagued transitional government to push national production back to the 1.4 million bpd it achieved last summer.

But about 2 1/2 years after Libyan dictator Moammar Gadhafi was driven from power in a NATO-backed uprising, the North African producer remains mired in lawlessness and anarchy, with the government powerless to restore stability or control dozens of heavily armed militias and tribal groups.

The current production level marked a significant decline from the 370,000 bpd the National Oil Corp. announced last week after el-Sharara, in Libya's southwestern desert, came back on stream after a two-month shutdown that ended in January.

The Libya Herald newspaper reported Tuareg tribal protesters demand the removal of an unelected local council. They claim pledges made by the authorities that ended the earlier shutdown have not been kept.

El-Sharara is operated by Arakus Oil Operations, a joint venture by Libya's NOC, Repsol of Spain, OMV of Austria and Total of France.

Oil officials said the field was closed after clashes erupted between gunmen and local inhabitants in the Obari region during a referendum on a new constitution.

"Libya is a total failure in post-revolution management," Olivier Jakob, managing director of Swiss research firm PetroMatix, told CNBC.

"Libya, Egypt, Syria ... the Mediterranean's growing into a greater post-revolution mess. ... There's a structural political issue with the eastern provinces that's preventing exports from that region, but the government's so weak that it can't even sustain production in the west of the country."

Restoring el-Sharara to full production in January was seen as a significant triumph for Prime Minister Ali Zeidan and his government as it strives to maintain Libya's crisis-riddled energy industry in the face of unruly and frequently dangerous militias, regional separatists and tribal groups demanding a greater share of the oil revenues.

Two heavily armed militias from the city of Zintan in the Berber highlands southwest of Tripoli, the al-Sawaig and al-Qaqaa brigades who played key roles in toppling Gadhafi in August 2011, demanded Feb. 18 the General National Congress, the country's Parliament, hand over power immediately.

Congress Speaker Nuri Abu Sahmein branded the militias' ultimatum "a coup d'etat."

The European Union, France, Italy, Britain and the United States all rallied behind the Congress, and denounced the use of force as an illegitimate means "to divert the democratic transition."

The threat, whatever it might have been, passed without incident, but it reflected the critical lack of security and control that permeates politics in Libya these days.

The critical element for Zeidan in his efforts to restore Libya's energy industry, which provides about 80 percent of state revenues, is ending the blockade of the eastern terminals.

Libya has estimated oil reserves of 76.4 billion barrels, the largest in Africa and the fifth largest in the world.

The eastern terminals of Es Sider, Ras Lanuf and Zueitina have been shut down by militias, which include former members of the 30,000-strong Petroleum Protection Force, since August.

They're demanding more autonomy for the eastern region, the crucible of the rebellion against Gadhafi and a longtime Islamist bastion, and a more equitable share of oil revenues.

In January they declared their own regional government in the eastern region, known as Cyrenaica.

The blockade has cut off about 600,000 bpd of export capacity and cost Libya $10 billion in lost revenue, forcing the government to draw heavily on foreign reserves.

The rebels, led by former PPF commander Ibrahim al-Jathran, have tried to sell the crude themselves. In January, the navy fired on a tanker trying to enter Es Sider and there have been no further attempts.

But on Feb. 12, al-Jathran's brother Khalid was arrested on an Interpol warrant in the Persian Gulf emirate of Dubai on charges of trying to sell Libyan oil illegally.

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