UPDATE 4-Baker Hughes posts smaller-than-expected loss as costs fall
* Aims to cut 2016 costs by $150 mln more than previously expected
* Hardline Cyrenaica federalist demands unaddressed
* Western oilfields complicate return of full output
* Divisions in eastern protest movement simmering
By Julia Payne
TRIPOLI, April 11 Libya may have averted a state collapse by striking a deal with eastern rebels to reopen occupied oil ports, but technical delays and simmering federalist dissent threaten to disrupt production once again.
On Sunday, Libya's fragile government reached an agreement with Ibrahim al-Jathran, the leader of eastern rebels, to reopen two oil ports they were holding and lift a nine-month blockade crippling crude exports.
Under the deal, Hariga and Zueitina ports will reopen immediately, with the larger Ras Lanuf and Es Sider terminals to be freed by Jathran's men in less than four weeks after more negotiations.
Nearly three years after dictator Muammar Gaddafi's fall, the port struggle reflects turmoil with rival brigades of former rebels dominating in the absence of a trained army and where political infighting delays decision-making.
With 700,000 barrels per day (bpd) of Libya's oil exports blockaded - more than half its usual shipments - the sides struck the deal after the government threatened force to break Jathran's blockade, instigated to demand more autonomy for his eastern Cyrenaica region.
Many eastern tribal leaders are pleased with Jathran's deal that calls for an independent watchdog to monitor oil revenues, eastern activists said, particularly because it avoided bloodshed.
But the second stage, to unlock Es Sider and Ras Lanuf terminals, could still unravel if the government fails to keep its end of the bargain.
"The deal is very good because, in an indirect way, the government recognises the Cyrenaica movement ... In my view, the ports will be open to see if the government is credible," Zeid al-Ragas, an eastern federalist activist, said.
"They will wait a few months and if not, they will probably close the ports again."
One key disagreement remains the division of oil wealth. Eastern federalists expect a portion of Libya's vast petroleum revenues to be allocated directly to a region that sees itself treated as an afterthought when it comes to state spending.
Negotiations are expected to last several more weeks but even if a final agreement is reached to open the two largest ports, connected oilfields could take several months to return to normal output.
"If security is perfect, we will start selling crude from storage first and once there is enough space available, we can go back to normal production," a Libyan oil official said. "This may take up to two months from the day we lift force majeure."
SEPARATE AGENDAS, SPLITS
The return of steady 1.4-million-bpd output, the pre-blockade level in July, is unlikely to happen before summer. A separate group of protesters is also blocking western oilfields, and there are already signs of divisions in the east.
Some in the east resent that Jathran negotiated salaries and several months of back pay for his 3,000 to 4,000 followers, who worked for the state Petroleum Facilities Guards (PFG) before defecting in August to take over the ports.
Others do not believe the former anti-Gaddafi rebel has achieved enough, such as a self-governing administration for Cyrenaica. Hardliners may demand even an autonomy referendum in the east before agreeing to a full end of the blockade.
"People are worried about the deal, that they (Jathran's men) are getting money that they shoudn't have ... lots of people will demonstrate," a PFG spokesman said.
Another local PFG commander at Waha Oil Co told state media on Wednesday that they are unhappy with the deal terms because it means deserters get paid. He called it an insult and a waste of state resources.
OLD GRIPES AND THE WEST
Locals around the Zueitina port did not block facilities for federalist ideals, but instead to demand jobs while those at the Arabian Gulf Oil Co (AGOCO) that operates Hariga, disputed management changes. All those other local disputes could eventually erupt again.
"So if the workers (AGOCO) in the field decide they have a grievance, they are very likely to shut in or cut output from fields even if the terminals remain open," Richard Mallinson, North Africa and Middle East analyst at Energy Aspects, said.
"People could see Jathran as the only issue, but even if he magically went away, other disruptions will pop up. It's structural and getting worse, as demonstrated by the situation in the west."
So far, Hariga's reopening has been a success with the official removal of force majeure but Zueitina's restart is still pending the arrival of a new PFG head.
The oilfields connecting to Zueitina could face some restart delays as they have been firmly shut since mid-July, while AGOCO was still producing low volumes.
"If the terminal is loading again, then the associated field might take about a week to restart. Ramp-up would probably take a couple of weeks from then, but could be longer if technical issues are encountered," Mallinson of Energy Aspects said.
Belgasim al-Moghrabi, one of the locals protesting for jobs at Zueitina, said the group was still waiting to find out whether the government would give them employment and if not, they would block the port once more.
Even if the east resumes normally, it is difficult to predict how the political crisis unfolding in parliament will stoke protests in the west.
Rival factions in parliament are loosely aligned to competing brigades of militias who refused to disarm after the fall of Gaddafi. Local tribes and militias often temporarily take over oilfields and pipelines to pressure the state.
The western oilfields, which produce around 500,000 bpd, have been closed several times over the last nine months and Libya's National Oil Corp was forced to shut them again in March.
The PFG oil guards in the west did not join Jathran as in the east and instead they show allegiance to their Zintan region, the mountain stronghold where one of the country's most powerful former rebel brigades is based.
"There's no such thing as the PFG, they obey Zintan and not the government," an industry source familiar with the matter said.
The Zintans, one of the most powerful groups in the west, turned off the valves on pipelines connecting the El Sharara and Mellitah oilfields to their respective ports in March, calling for changes to the electoral law.
On top of the Zintani pipeline blockade, the 340,000-bpd El Sharara oilfield itself continues to be blocked by local tribes who want more rights, forcing the government to meet different sets of overlapping demands to end that protest.
"The desert tribes watch for flaring at the oilfield," an industry source said. "If they see that, they know it has reopened and they come back to close it down." (Additional reporting by Ulf Laessing in Tripoli and Ayman al-Warfalli in Benghazi; Editing by Dale Hudson)
* Aims to cut 2016 costs by $150 mln more than previously expected
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