Accord with North African company comes as Moscow seeks to expand its influence

Libya’s state oil company has signed a preliminary agreement with Russia’s Rosneft for investment into its energy sector as the struggling north African nation seeks $20bn to boost crude output.

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The preliminary agreement was signed on Tuesday in London by Mustafa Sanalla, the chairman of Libya’s National Oil Co, and Rosneft chairman Igor Sechin on the sidelines of the International Petroleum Week conference. “The commitment shown by Rosneft and the presence of a company of this size in Libya will help stability after so many years of conflict,” Mr Sanalla told the Financial Times of Rosneft’s plan to expand into Libya for the first time. “I hope to see other international oil companies return.” Rosneft’s accord with NOC comes as Russia tries to gain a larger grip on oil supplies in the Mediterranean and extend its influence in the Middle East and north Africa more broadly. The NOC agreement was announced alongside a separate deal to pre-finance crude exports from Kurdistan, making Rosneft the first major oil company to do so with the semi-autonomous region in northern Iraq. Rosneft recently acquired a stake in the Zohr gasfield in Egypt.

Mr Sanalla said Libya’s energy sector, the lifeblood of the country’s economy, needs $20bn in investment to reach an oil production target of 2.1m barrels a day by 2022. NOC and Rosneft also signed a crude oil offtake agreement, under which the Russian company will be a taker of future Libyan output. Before the 2011 revolution that toppled the country’s longstanding dictator Muammer Gaddafi, Libya’s output was above 1.6m b/d. It then collapsed to a fraction of this level as conflict took hold and international oil companies halted operations. In the following years protests and blockades have proved obstacles to a return to full output, while a collapse in the oil price further shrunk NOC revenues. However, in recent months the reopening of three major ports and a pipeline has helped Libya’s supplies improve, with production recovering to around 700,000 b/d. Alongside funds from local lenders, Mr Sanalla is also seeking financing from international oil companies, which he hopes will revive the energy sector that has been hard hit by years of civil war, unrest and hundreds of billions of dollars of lost revenues. Libya is also in talks with OMV, ENI and Total, said Mr Sanalla.

The initial agreement would “lay the groundwork” for a more detailed contract within the next month, Mr Sanalla added. Exploration, production, technology and training for engineers are areas where Libya seeks investment. One of the two Opec members exempted from a global supply cut deal, Libya hopes output will rise to 1.2m b/d by the end of the year. But output gains are dependent on investment as well as repairs to energy infrastructure. Ongoing conflict between political factions based in Tripoli and the east of the country also threatens to hold back the oil industry’s recovery. Both sides have battled for control over the country’s natural resources. The forces of eastern-based military commander Khalifa Haftar have only recently co-ordinated with the NOC in Tripoli following attempts last year by factions loyal to him to sell oil independently. General Haftar has sought help from Moscow in fighting Islamic State militants in the country.

Additional reporting by David Sheppard