December 22, 2016 / 4:25 PM / 9 months ago

Libya oil production boost at risk from political splits

* NOC aims to bring output to 900,000 bpd by March

* Deals to free pipelines involve multiple parties

* Political scramble still major risk to production

By Aidan Lewis

TUNIS, Dec 22 (Reuters) - The reopening of western Libya’s main oil pipelines puts ambitious production targets within reach, but the shadow of an unresolved conflict and the risk of new blockades hang over potential output gains.

Just four months ago, Libya’s output was languishing under 300,000 barrels per day (bpd), a fraction of the 1.6 million bpd the OPEC member had been producing before its 2011 uprising.

Now valves on pipelines from the major oilfields of Sharara and El Feel have been opened and the NOC says it can push output from 600,000 bpd currently to nearly 900,000 bpd by March.

That could upset plans by the Organization of the Petroleum Exporting Countries to bolster global prices - Libya along with Nigeria was exempted from a recent pledge to cut production - but it would provide relief for a country driven to the brink of economic collapse by a drastic fall in oil revenue.

“This is the first time for three years that all our oil will flow freely,” NOC Chairman Mustafa Sanalla said. Workers cheered as gas flares were lit on Wednesday at Sharara, which has a capacity of 330,000 bpd.

The NOC said no money changed hands and no backroom deals were made to open up the pipelines.

It has warned that production restarts will be gradual, because infrastructure across the country has been damaged by fighting and neglect.

But the deal is also seen as fragile, the result of tortuous negotiations with local groups around the northwestern town of Zintan, close to where the valves had been shut.

It is just one example of how the NOC has to try to navigate the tangled web of political and armed factions that have vied for power in Libya since a 2011 uprising.

Even after a faction of Petroleum Facilities Guard (PFG) announced the reopening, it was six days before the NOC officially confirmed it, reflecting concerns that the pledge would not be fulfilled.

An official at El Feel said a separate faction of the PFG from the Tebu ethnic group had been obstructing operations there. A Libyan oil industry source said that was still the case on Thursday.

“These negotiations take multiple groups and multiple actors to move things,” said Claudia Gazzini, Libya analyst for International Crisis Group. The PFG, which is meant to be a national force, has splintered into sub-groups with conflicting political loyalties.

“It’s still a very fragile oil and gas structure. Reopening one valve doesn’t give any guarantee that production will restart in the fields,” said Gazzini.

POLITICAL TURMOIL

The broader threat to oil production comes from an unresolved power struggle involving the U.N.-backed Government of National Accord (GNA) in Tripoli and allies of military commander Khalifa Haftar based in the east.

In September, Haftar’s forces prised four ports in Libya’s Oil Crescent from a PFG commander, Ibrahim Jathran, who had aligned himself with the GNA.

The blockade was lifted, oil production more than doubled to 600,000 bpd, and Haftar’s allies confirmed their physical control over most of Libya’s oil resources.

Oil revenues, however, have continued to be paid to the central bank in Tripoli, which is under pressure from Western states to release regular funding to the GNA.

If it does so, analysts say Haftar’s allies in the east may shut down the Oil Crescent ports once more, rather than seeing substantial income go to rivals in Tripoli.

That could bring the western pipelines under threat as well. Though Zintan is internally divided, the faction that opened the valve is aligned to Haftar’s Libyan National Army.

Another worry for the NOC is that eastern power-brokers repeat past, failed attempts to sell oil independently.

With international support, the NOC and the central bank in Tripoli have retained control over oil production and revenues.

But their relationship with the GNA is shaky and breakaway branches of both institutions continue to operate in the east, where officials complain that the country’s much reduced oil wealth is not being shared out fairly.

On Saturday, as the deal to reopen the pipeline hung in the balance, the NOC’s Sanalla put out a statement complaining that nearly six years after Libya’s revolution, the problem of how to manage and distribute the country’s oil wealth had never been properly addressed.

If oil continued to be exploited politically, Libya still risked a “tragic end” to its recent period of conflict, he said.

“This issue reveals the size of the gulf separating us from a political solution.” (Editing by Patrick Markey and Susan Thomas)

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