Why are oil operators even entertaining Libya?

The key risk assessment here seems to be the overly simplified notion that it’s been 5 years since Libya’s civil war ended, and the dust has settled. Nothing could be further from the truth, even as Libya’s NOC gets all pomp and circumstance with its new exploration contracts for the first time in two decades. The European interest is largely about replacing Russian oil, even as Russia works to expand its own footprint in Libya.

So for the first time in 17 years, Libya, this week, launched an oil and gas exploration bidding round, with 22 new blocks up for grabs, onshore and offshore. The launch went down in London, for the fanfare, and has garnered a significant amount of interest because these are believed to be high-potential basins, including in the Mediterranean, that could have enough oil to reshape the regional balance of power, especially where it concerns Turkey, which considers Libya a key piece of its energy-hub empire-building plan. 

But it’s a gamble. Whether this is extremely short-sighted or incredibly far-sighted depends on whom you ask. 

From the perspective of close observers of the Libyan political landscape, diving head-first into Libya’s first new oil and gas exploration is short-sighted, indeed. Offshore is safer, just by pure distance, but all those investment dollars are still at risk. These observers understand that while the civil war technically ended five years ago, there was…

Why are oil operators even entertaining Libya?

The key risk assessment here seems to be the overly simplified notion that it’s been 5 years since Libya’s civil war ended, and the dust has settled. Nothing could be further from the truth, even as Libya’s NOC gets all pomp and circumstance with its new exploration contracts for the first time in two decades. The European interest is largely about replacing Russian oil, even as Russia works to expand its own footprint in Libya.

So for the first time in 17 years, Libya, this week, launched an oil and gas exploration bidding round, with 22 new blocks up for grabs, onshore and offshore. The launch went down in London, for the fanfare, and has garnered a significant amount of interest because these are believed to be high-potential basins, including in the Mediterranean, that could have enough oil to reshape the regional balance of power, especially where it concerns Turkey, which considers Libya a key piece of its energy-hub empire-building plan. 

But it’s a gamble. Whether this is extremely short-sighted or incredibly far-sighted depends on whom you ask. 

From the perspective of close observers of the Libyan political landscape, diving head-first into Libya’s first new oil and gas exploration is short-sighted, indeed. Offshore is safer, just by pure distance, but all those investment dollars are still at risk. These observers understand that while the civil war technically ended five years ago, there was no winner, and the participants (two clans) have since only enriched themselves and built up large defense forces and bought more and more militia support. They are just regrouping for the next civil war, and the slightest imbalance in the existing, very unofficial clan power-sharing deal (east and west) could set it off. Will they risk all this potential new oil money in a civil war? Yes, they will. Why? Because at least one of the clans will get the money anyway. Once there, the foreign investment dollars won’t disappear, even if a civil war explodes. They’ll simply press pause and wait to see who comes out on top, but they’ll lose a lot of time and money in the interim. And in the next civil war, if there isn’t a clear winner, it will be rinse and repeat in another 5 years. 

From the perspective of oil explorers, this is quite far-sighted, even if a few civil wars rear up to get in the way. And to hear the NOC in London, Libya–home to the 9th largest known oil reserves in the world–these exploration blocks are the golden goose. Despite its high-grade global status for reserves, Libya only produces about 1.4 million bpd (when things go smoothly). It will cost Libya (according to the NOC) $5 billion to get output up to 2 million bpd, and in order to collect that, they need those projects that were suspended (Eni, OMV, Repsol) because of the civil war to be restarted in the least (based on interview with NOC spokesman Khaled Gulam in FDI Intelligence. These same three companies are testament to the fact that if a civil war breaks out, the Clans won’t be risking the permanent loss of their foreign investors. They’ll be back, because it’s big. (In 2023, Eni signed an $8B deal to develop 2 offshore gas fields.) 

It’s potentially big enough to risk billions of exploration dollars on a civil war that is increasingly likely to happen in the very near future.