Libya's oil sector faces more uncertainty as GNU looks to oust NOC's Sanalla

Libya's oil sector could see more political turmoil after the Government of National Unity proposed replacing Mustafa Sanalla as chairman of state-owned National Oil Corporation.

GNU Prime Minister Abdul Hamid Dbeibah has put forward Farhat Bengdara, an ex-governor of the Central Bank of Libya, as the successor to Sanalla, sources close to the matter told S&P Global Commodity Insights July 13, adding Dbeibah also proposed restructuring the whole board of NOC.

Sanalla, who remains in charge of the NOC, is likely to contest the decision, according to sources and analysts.

Separately on July 13, NOC said in a statement it had lifted force majeure on the eastern oil terminals of Brega and Zueitina to allow a tanker to carry condensate for use in power generation after near a two-week closure.

Sanalla, who was quoted in the statement, sought to reassure international oil markets about the NOC's resolve in maintaining its oil supply, saying that companies have been instructed to boost oil and gas output gradually.

Libya's oil production has fallen almost two-thirds due to a series of blockades and shutdowns at its key infrastructure, caused by an ongoing and deepening political crisis, and has remained well below its current capacity of 1.2 million b/d in recent months.

Representatives at the GNU and NOC were not available for comment.

Under pressure

Sanalla, an engineer by background, has been the de facto leader and face of the Libyan oil industry over the past few years. Many international oil companies have praised his leadership of NOC.

Despite numerous civil conflicts, Sanalla has helped the NOC maintain a large chunk of its production capacity, and has kept the state-owned company largely politically neutral despite the fractious political and tribal divisions present in the country.

But political divisions within the country have worsened in 2022, and Sanalla has come under more pressure from both the GNU and the eastern authorities such as the Government of National Stability and the self-styled Libyan National Army.

The move to put Bengdara at the helm of the NOC satisfies LNA's interests and could lead to an end to the current oil blockade, according to Iliasse Sdiqui, associate director at Whispering Bell, a risk management company covering North Africa.

"This move will further politicize the oil sector and result in complex political disputes that could present additional bureaucratic challenges for international oil companies, regardless of the immediate benefits associated with a potential resumption of production as a result of Dbeibah's entente with Haftar," Sdiqui said.

Bengdara was the governor of the CBL from 2006-11 until the downfall of Moammar Qadhafi following a civil war.

His appointment to the NOC was a condition set forth by Haftar during back-channel negotiations with the GNU, according to Sdiqui.

Many of Libya's institutions have regularly clashed on issues relating to the oil sector, which has been hard hit by civil war, militant unrest, and terrorist attacks over the past decade.

Last year, the NOC and Central Bank of Libya clashed on the distribution of oil revenues as the country's crude output rose sharply after years of disruption.

Analysts expect Libyan oil output to be volatile in coming months due to persistent technical issues and a worsening political crisis.

Platts Analytics said Libyan crude output has averaged 400,000 b/d in the past week. "Our forecast for a rebound to 800,000 b/d in July is too optimistic, as even sustaining June volumes of 600,000 b/d looks like a stretch," it said in a recent note.

Libya exports mainly light-sweet crude grades such as Brega, Es Sider and Sharara.

Its main export markets are in southern Europe and China. The producer -- which holds Africa's largest reserves -- is excluded from quotas limiting production by OPEC.