Libya is a major oil exporter, particularly to Europe. With the suspension of U.N. sanctions against Libya following its extradition of two men suspected in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, oil companies are eager to resume and/or expand operations in Libya.
Note – the material is updated as - July 2000
GENERAL BACKGROUND
Oil export revenues, which account for about 95 percent of Libya's hard currency earnings, were hurt severely by the dramatic decline in oil prices in 1998, as well as by reduced oil exports and production -- in part as a result of U.S. and U.N. sanctions. With higher oil prices since 1999, however, Libyan oil export revenues have increased sharply (to $7.4 billion in 1999, and forecast at around $12 billion in 2000).
Libya is attempting to reduce its dependency on oil as the country's sole source of income, and to increase investment in agriculture, tourism, fisheries, mining, and natural gas. Libya also is attempting to position itself as a key economic intermediary between Europe and Africa, has become more involved in the Euro-Mediterranean process, and has pushed for a new African Union.
Following years of stagnation, real gross domestic product (GDP) growth of 5 percent is expected in both 2000 and 2001. This could help lower Libya's 30 percent unemployment rate. Libya's relatively poor infrastructure (i.e. roads and logistics), unclear legal structure, often-arbitrary government decisionmaking process, and various structural rigidities all have been impediments to foreign investment and economic growth.
Libya's need for increased foreign investment may help push the country towards economic liberalization. In September 1999, however, President Qadhafi appeared to reject such a move, saying that Libya would block speculative investment.
A compromise could be to encourage joint ventures between foreign and domestic companies. Also in recent months, Libya has eased foreign exchange controls and has established a free-trade zone. Libya's agricultural sector is a top governmental priority. Hopes are that the Great Man Made River (GMR), a five-phase, $30-billion project to bring water from underground aquifers beneath the Sahara to the Mediterranean coast, will reduce the country's water shortage and its dependence on food imports.
On March 1, 2000, President Qadhafi made a surprise announcement that the Libyan government had effectively been abolished and that powers would be devolved to the local level. Earlier, on January 28, 2000, President Qadhafi had publicly rejected the draft 2000 budget at the opening session for the General People's Congress.
Qadhafi described the budget as "treason," and complained that it had been based 100 percent on "use of oil receipts...for the state's ordinary spending or...imports" as opposed to development. A revised budget was presented on February 27, 2000, reportedly allocating more funds to infrastructure development. Meanwhile, with the abolition of the country's energy ministry, the National Oil Company (NOC), under former Oil Minister al-Badri, is now formally in charge of the country's energy policy. It is likely that this will have little impact, although further delay in Libya's new hydrocarbons law (which is designed to encourage foreign investment) appears likely.
On April 5, 1999, more than 10 years after the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland that killed 270 people, Libya extradited two men suspected in the attack. In response, the United Nations suspended economic and other sanctions against Libya which had been in place since April 1992. U.S. sanctions, including the Iran-Libya Sanctions Act (ILSA) of 1996 (which covers foreign companies that make new investments of $40 million or more over a 12-month period in Libya's oil or gas sectors) remain in effect.
U.N. sanctions since 1992 reportedly have cost Libya as much as $26 billion. A full lifting of sanctions can occur 90 days after the U.N. certifies that Libya has met all requirements, including renunciation of support for terrorist acts. On July 9, 1999, the U.N. Security Council issued a statement saying that while it "welcomed the significant progress" which Libya had made in complying with U.N. demands, that at the same time Libya would need to do more (i.e., cooperate with court proceedings, pay compensation to families if the suspects are convicted) before sanctions were lifted permanently.
OIL:
Libya's oil industry is run by the state-owned National Oil Corporation (NOC), along with smaller subsidiary companies. Several international oil companies are engaged in exploration/production agreements with NOC. The leading foreign oil producer in Libya is Italy's Agip-ENI, which has been operating in the country since 1959.
Two U.S. oil companies (Exxon and Mobil) withdrew from Libya in 1982, following a U.S. trade embargo begun in 1981. Five other U.S. companies (Amarada Hess, Conoco, Grace Petroleum, Marathon, and Occidental) remained active in Libya until 1986, when President Reagan ordered them all to cease activities there.
In December 1999, U.S. oil company executives from these five companies (except for Grace) traveled to Libya, with U.S. government approval, to visit their old oil facilities in the country. Prior to sanctions, the four companies produced around 400,000 bbl/d in Libya. The head of NOC, Abdullah al-Badri, has stated that if U.S. companies return to Libya, they will return to the fields they used to operate in the country.
Overall, Libya would like foreign company help to increase the country's oil production capacity from 1.4-1.5 million bbl/d at present to 2 million bbl/d (at a cost of around $1.5 billion). This would still be far below the country's production capacity of around 2 million bbl/d during the early 1970s, prior to the country's revolutionary government imposing tough terms on producing companies, leading to a slide in oilfield investments and oil production. In May 2000, Libya invited around 50 foreign oil and gas companies to a meeting to discuss exploration and production sharing agreements.
Currently, Libya has 12 oil fields with reserves of 1 billion barrels or more, and two others with reserves of 500 million-1 billion barrels. Libya's onshore oil (where most production currently takes place) is found mainly in three geological trends of the Sirte Basin: 1) the western fairway, which includes several large oil fields (Samah, Beida, Raguba, Dahra-Hofra, and Bahi); 2) the north-center of the country, which contains the giant Defa-Waha and Nasser fields, as well as the large Hateiba gas field; and 3) an easterly trend, which has such giant fields as Sarir, Messla, Gialo, Bu Attifel, Intisar, Nafoora-Augila, and Amal.
Despite years of oil production, Libya retains a large untapped oil and gas potential, with only around 25 percent of Libya's area covered by agreements with oil companies. This potential is due largely to lack of investment mainly as a result of stringent fiscal terms imposed by Libya on foreign oil companies under EPSA III (exploration and production sharing agreement round III).
NOC priorities for exploration include new areas in the Sirte, Ghadames, and Murzuq basins, plus unexplored areas such as Kufra and Cyrenaica. NOC also hopes to apply modern Enhanced Oil Recovery (EOR) techniques to existing oil fields.
Libya has a relatively narrow continental shelf and slope in the Mediterranean and Gulf of Sirte, which widens in the west in the Gulf of Gabes. The northern part of the Gulf of Gabes, also known as the November Seventh concession, lies on the Libyan-Tunisian border and is rich in oil and gas.
As part of a 1988 settlement to a long-standing territorial dispute, the area (which contains an estimated 3.7 billion barrels of oil and nearly 12 trillion cubic feet -- Tcf -- of natural gas) is set to be exploited by the Libyan-Tunisian Joint Oil Company (JOC), a 50-50 venture of Libya's NOC and Tunisia's ETAP.
The Libyan side of the zone contains the Omar structure, which is estimated to contain more than 65 percent of the zone's total oil and gas reserves. On February 1, 1997, JOC awarded the entire block to a consortium consisting of Saudi Arabia's Nimr Petroleum (55 percent) and Malaysia's Petronas (45 percent). The companies have a $30-million, 5-year commitment to explore the block. Full development of the concession could cost more than $1 billion.
Production, Exports, and Reserves:
Libya produces high-quality, low-sulphur ("sweet") crude oil at very low cost (as low as $1 per barrel at some fields). For the first four months of 2000, Libyan oil production was estimated at around 1.4 million bbl/d, less than half the 3.3 million bbl/d produced in 1970.
Libya would like to boost oil output, and the suspension of U.N. sanctions, along with possible changes to Libya's 1955 hydrocarbons legislation, could be helpful in this regard. Sanctions had caused delays in a number of field development and EOR projects and deterred foreign capital investment. Suspension of sanctions means that Libya now can resume purchases of oil industry equipment.
With reserve replacement slipping since the 1970s, Libya's challenge is maintaining production at mature fields (Brega, Sarir, Sirtica, Waha, Zuetina) while at the same time bringing new fields like Murzuk/El Sharara (online in December 1996; reserves of 2 billion barrels; main operator Repsol-YPF, along with Austria's OMV and TotalFinaElf) and Mabruk online. Libya currently exports about 1.2 million bbl/d of oil. Nearly all (about 90 percent) of this is sold to European countries like Italy (516,000 bbl/d in 1999), Germany (296,000 bbl/d), France (67,000 bbl/d), Spain and Greece.
With state-operated oil fields undergoing a 7 percent -8 percent natural decline rate, Libya depends heavily on foreign companies and workers. Major foreign companies include Italy's Agip-ENI (250,000 bbl/d of production, including around half at Bu Attifel -- Agip-ENI's largest field in Libya), OMV (150,000 bbl/d), Germany's Wintershall (around 100,000 bbl/d) and Veba (95,000 bbl/d), TotalFinaElf (85,000 bbl/d), and Repsol-YPF (80,000 bbl/d). Production, from Block NC-115 of the Murzuk basin, being developed by Repsol-YPF, Total, and OMV (with 75% of output going to Libya's NOC), increased to around 75,000 bbl/d in early 1998, and 140,000 bbl/d as of early 1999. In January 1999, Repsol (now Repsol-YPF) said that it had found an "important" petroleum deposit of light, sweet (low sulfur) oil in block NC-115.
Libya is actively courting foreign oil companies. In early July 1999, Repsol-YPF said that Libya would be a key area in its future expansion plans. In April 1999, Libya held an oil and gas conference in Geneva, attended by some 400 oil executives, at which Libyan Energy Minister al-Badri assured oil companies that existing acreage contracts with Libya would be honored.
In November 1999, NOC named 80 blocks -- both onshore and offshore -- that would be opened to foreign oil companies already working in Libya as well as those which have expressed interest under EPSA III terms.
These blocks included: C1-C8, in the Cyrenaica Basin (northeastern Libya); G1-G6, in the Ghadames Basin (western Libya); M1-M13 in the Murzuk Basin (the southwest "frontier" region); O1-O13, in non-committed offshore areas; and S1-S53, in the Sirte Basin, center of current oil production in Libya.
In June 2000, news reports indicated that Libya was preparing a licensing round for fall 2000 on over 130 oil and (down from 450,000 bbl/d in 1986), has been among the companies most adversely affected by the U.S. embargo. This is due to the fact that its oilfields are equipped mainly with old U.S. equipment, for which WOC cannot now acquire needed spare parts. As a result, production at WOC's giant Waha field has fallen sharply despite an emergency maintenance program begun in 1992. After Waha, the next largest is the Arabian Gulf Oil Company (Agoco), with around 320,000 bbl/d in production coming mainly from the Sarir, Nafoora/Augila, and Messla fields.
Another large NOC subsidiary is the Sirte Oil Company (SOC), originally created in 1985 as a joint venture with Grace Petroleum, one of the five U.S. companies forced by the U.S. government to leave Libya in 1996. SOC, with around 100,000 bbl/d in total production, operates the Raguba field in the central part of the Sirte Basin. The field is connected by pipeline to the main line between the Nasser field and Marsa el-Brega. Nasser is one of the largest oilfields in Libya, with production of about 60,000 bbl/d of oil, down from 70,000 bbl/d in 1992. Production at Nasser is expected to fall further, to about 50,000 bbl/d, by 2000. Besides Nasser, SOC is in charge of two other fields -- Attahaddy and Assumud.
Libya's oilfields are connected to Mediterranean terminals by an extensive network of pipelines. Libya's main crude oil pipelines are: Sarir-Marsa el Hariga; Messla-Ras Lanuf; Waha-Es Sider; Hammada el Hamra-Az Zawiya; Amal-Ras Lanuf; Intisar-Zueitina; Nasser (Zelten)-Marsa el Brega. NOC is considering bids for a $150 million-$300 million expansion of the oil terminal at Az Zawiya.
Source : United States Energy Information Administration.
Note: Information contained in this report is the best available as of July 2000 and can change.
See also Albawaba ENI upcomming feature about ENI in Lybia.
© 2000 Mena Report (www.menareport.com)
