Libya's Biggest Western Oilfield Restarts, East in Stalemate

TRIPOLI/LONDON, Sept 16 (Reuters) - Libya took the first steps towards restarting some of its oil output on Monday as the government said a tentative deal with protesters in the country's west allowed pumping to resume from a major field.

Hopes of a full output resumption from the OPEC producer remained slim after an attempt at a similar deal with protesters in the east collapsed, meaning two-thirds of the country's output would remain shut for the time being.

The government has been locked in talks with feuding tribes, militia and protester groups over the past two months as output collapsed to a tenth of Libya's maximum capacity of 1.5 million barrels per day.

The worst disruption since the 2011 revolution has already cost Libya and Western companies such as Italy's Eni and U.S. Marathon billions of dollars in lost revenue and has contributed to a spike in global prices to a six-month high during August.

On Monday, one of Libya's key oil fields in the west, El Sharara, resumed pumping after an armed group agreed to let valves on the pipeline linking the field to export terminals be re-opened, a senior Libyan oil official said.

Another major field, El Feel, has not restarted as workers were going to inspect connecting pipelines.

"El Sharara has opened and crude has reached the terminal. It's just pumping from the tanks so then we'll slowly turn on the wells," the official said. "I think (Sharara) should come back to normal production by Friday."

Libya produces around a third of its output from its western fields so if El Sharara and El Feel reached full capacity the country could be exporting 400,000 bpd in addition to the 80,000 bpd Libya has been exporting from offshore fields, which have not been affected by strikes.

TALKS IN THE EAST COLLAPSE

Libyan media reported over the weekend that protesters in the east have reached a deal to reopen export terminals from Monday while demanding a number of conditions to be met within three months.

But the spokesman for the protesters denied the reports.

"There is no deal and the port terminals in the east from Es Sider, Ras Lanuf to Brega and Hariga are closed for exports until the protesters demands are met. The government has not responded to our demands," Osama al-Oreibi told Reuters.

Al-Oreibi is the spokesman for the federalists in the "Brega political office", headed by Ibrahim al Jathran, who is seeking a bigger role in the oil industry.

Industry executives say stoppages in the west are led mainly by the powerful Zintan tribe, a major rebel group that has become influential within government-financed army units and could be flexing its muscles for a bigger political role.

In the coastal east, demands beyond more pay extend to a broader political agenda including the sharing of oil revenues and a bigger self-government role.

Samir Salem Kamal, Libya's representative at the Organization of the Petroleum Exporting Countries, told Reuters on Monday it would take weeks for production to climb back to pre-crisis levels even if strikes ended immediately. Repair and maintenance work would cost millions of dollars.

"If they open production, we will have to gradually return back. We are going to face problems for sure. I cannot imagine in a week or two, hopefully it will be weeks," he said.

Some pipelines and pumping stations will need replacing because of prolonged stoppages. Adding to the problems could be the reluctance of European refiners, who buy the bulk of Libyan oil, to commit to purchasing large volumes next year, he said.

"I expect in 2014 we will face problems in selling our crude as they would consider Libya an unstable country that cannot meet its contractual commitments," said Kamal.