Libya On The Brink Of Conflict Despite Rising Oil Output

Politics, Geopolitics & Conflict

Watch Libya’s newfound oil output with a huge dose of skepticism. We’ve warned of this repeatedly since a dubious deal that ousted the NOC chairman and suddenly saw an end to protests and lifting of force majeure. It’s still a powder keg - more so every day. PM-designate Bashagha is no longer content to sit in Sirte, the gateway to the Oil Crescent, where he set up his government when current interim PM Dbeibah refused to step down. He is now threatening to take Tripoli by force. Both sides are clearly mobilizing their forces. If Bashagha tries to enter Tripoli again (it would be the third attempt), this time it will be armed, which will likely mean a return to bloody conflict. On Thursday, an extraordinary meeting of the Presidential Council and top security officials was convened, with Dbeibah included. The UN is on high alert, and the US State Department is also on edge. A mobilization is happening, and this is the 11th hour. Things are slightly different now, though. There are new alliances and factions, and it won’t play out the same way it did in 2014. This time external forces aren’t as keen to be involved and turn this into a Libya-wide war for control of oil resources. It is not yet clear whether Bashagha could have a chance at taking Tripoli by force. This would depend on to what extent militia alliances have shifted inside Tripoli. Coming in from the outside alone, we do not see how he could overcome the GNU’s defenses (not even General Haftar succeeded in this).

Winter in Europe Outlook

Facing a severe drought that could last another three months and then winter with the prospect of Russian gas being cut off, soaring prices, and a lack of storage, Europe’s energy crisis is set to only get worse. European countries are making significant progress in filling up gas storage, but a Russian cutoff would still mean a ~40% hit in consumption for the bloc.

This is where the continent stands, as of this week:

Gas production in the North Sea has increased some 25% in the past six months and, for the first time on record, the UK imported zero fuel from Russia in June. The UK is now producing approximately 50% of its own energy needs.

The European Commission is targeting 80% gas storage capacity bloc-wide by October 1st. So far, storage is less than 78% full.

Romania now says it has sourced enough gas supply to last through the winter, with storage facilities 70% full.

Germany’s gas storage is now 80% full.

Italy also says its natural gas storage is 80% full and should hit 90% by October, while the country has reduced dependence on Russian gas by half.

Also alleviating some of the supply issues is China, which is reselling some of its surplus LNG cargoes to Europe (that, in turn, denotes weaker demand in China). It’s not ideal geopolitically, and likely not sustainable as it is vulnerable to Chinese demand. Delays of new US LNG are somewhat impeding Europe’s ability to fill storage to capacity. The biggest hurdle here is the shutdown at Freeport LNG’s terminals, which (as of the latest) are not due to be back online until late November (previously, the target restart was October).

More cutoffs are now on the way, with Russia saying it will halt natural gas supplies to Europe via Nord Stream 1 from August 31st to September 2nd, while current Nord Stream 1 flows are only at 20%.

European industry is taking a hit in cases where it can’t switch from natural gas to oil. Fertilizer producers are particularly problematic. Norway’s Yara cannot absorb the soaring natural gas prices and has announced it will further cut its ammonia capacity to around one-third. In the UK, CF Fertilisers will temporarily halt ammonia production at its Billingham Complex and will have to import ammonia to produce AN fertilizer and nitric acid. Some estimates now hold that Europe has lost around 50% of its ammonia capacity and one-third of its nitrogen fertilizer operations. Germany’s sugar industry, on the other hand, has managed a switch from natural gas to oil. ??Sugar giant Nordzuker will start its refining in early September after having successfully converted its plants to oil. That puts 80% of Germany’s sugar industry back on oil. In Poland, Carlsberg beer may also be forced to stop production or at least significantly reduce output as the energy crisis prompts a shortage of liquid CO2.

Discovery & Development

In a major milestone for renewable energy, Scotland’s giant offshore wind farm officially began generating power this week in the North Sea. After over a decade of development, it is now a reality that will ramp up to 1.1 GW of electricity and power a million homes at full capacity.

Deals, Mergers & Acquisitions

Petronas is looking to raise $3 billion from its upstream assets in Africa, including in Chad. Petronas said it could sell the assets to different buyers. Petronas is also exploring what to do with its downstream assets in Africa. It is still in the early stages of deliberation.

Amazon will buy green hydrogen from hydrogen fuel cell maker Plug Power in a deal announced on Thursday that sent Plug Power’s shares up 9% by close. The deal will see Amazon scoop up nearly 11,000 tons of green hydrogen annually from Plug beginning in 2025. That hydrogen will power some 30,000 forklifts or 800 long-haul trucks. Amazon gets warrants to purchase up to 16 million shares in the company and will spend up to $2.1 billion over 7 years before the warrants.

The Regulatory Front

A U.S. court has supported an earlier decision from a World Bank tribunal that has Venezuela pay ConocoPhillips for expropriating its assets back in 2007 during the great nationalization of its oil industry under then-President Hugo Chavez. The award amounts to $8.75 billion, but fell far short of the $30 billion Conoco has been seeking.

South Korea’s S-Oil has been ordered by local authorities to shut down 4 main processing units for 15 days, citing safety management rule violations. The shutdown is set to expire on September 15. S-Oil said it would file for an injunction. S-Oil suspended production at several units once already this year after a blast at its Onsan refinery killed someone.