Inviting investment

According to the Oil and Gas Journal, Libya had total proven oil reserves of 41.5 billion barrels as of January 2007, up from 39.1 billion barrels in 2006.

About 80 % of Libya’s proven oil reserves are located in the Sirte basin, which is responsible for approximately 90 % of the country’s total oil output.

With domestic consumption of 284 000 bpd in 2006 (70% of Libya’s oil), the country had estimated net exports (including all liquids) of 1.53 million bpd.

According to 2006 official trade data as reported to the Global Trade Atlas, the vast majority of Libyan oil exports are sold to European countries such as, Italy (495 000 bpd), Germany (253 000 bpd), Spain (113 000) bpd and France (87 000 bpd).

As well as Libya’s burgeoning oil industry, since the opening of the US $6.6 billion, 32-inch, 370-mile ‘Greenstream’ pipeline to Europe in late 2004, exports of gas from Libya have also been of particular significance.

Currently, 280 billion ft3 per year of natural gas is being exported from a processing facility at Melitah, on the Libyan coast, via Greenstream to southeastern Sicily.

From Sicily, the natural gas flows to the Italian mainland, and then to the rest of Europe.

Expansion of natural gas production remains a high priority for Libya for two main reasons. Libya aims to use natural gas instead of oil domestically for power generation, freeing up more oil for export.

Second, Libya has vast natural gas reserves and is looking to increase its natural gas exports, particularly to Europe.

According to the Oil and Gas Journal, Libya’s proven natural gas reserves as of January 2007 were estimated at an average of 52.7 trillion cubic feet (ft3), from major producing fields including Attahadi, Defa-Waha, Hatiba, Zelten, Sahl, and Assumud.

Libya is also a major exporter of liquefied natural gas (LNG). In 1971, Libya became the second country in the world (after Algeria in 1964) to export LNG.

Libya’s LNG plant, at Marsa El Brega, was built in the late 1960s by Esso and has a nominal capacity of about 125 billion ft3 per year.

However, the sanctions imposed by the United States prevented Libya from obtaining much needed equipment to separate out LPG from the natural gas.

Thus, limiting the plant’s output to about 15% of nameplate capacity, all of which is exported to Spain (Enagas).

Iran-Libya sanctions

To expand its natural gas (and oil) production, marketing, and distribution, Libya is looking to foreign participation and investment.

However, despite these plans, according to reports by energy research and consulting firm Wood McKenzie, Libya remains “highly unexplored”, seen as a reflection on the impact of former sanctions.

The sanctions were imposed on any international firm that invested more than US $40 million in Libya’s oil and gas sector annually, highly affecting the amount of investments that were made as a result.

In 2004, the US eased its economic sanctions against Libya, and the White House issued a press release stating that: “U.S. companies will be able to buy or invest in Libyan oil and products. U.S. commercial banks and other financial service providers will be able to participate in and support these transactions.”

Since the lifting of the sanctions, some of the world’s largest oil and gas companies are preparing to fight it out for a stake in the country’s alluring oil and gas industry.

With the help of investing companies, according to the International Crude Oil Market Handbook, Libya’s National Oil Company (NOC) would like to raise oil production from 2 million bpd by 2008 up to 3 million bpd by 2010-2013.

Post-sanction foreign investments

Although the NOC may want to significantly raise the country’s production levels to make up for lost time, after twenty-five years of US and UN sanctions, Libya will require up to an estimated US$10 billion in foreign investments through to 2010 to achieve this goal.

In order to keep up to date with plans to rectify the country’s current problems within its oil and gas sector, of the US $10 billion the NOC has earmarked US $1.5 billion for infrastructure investments – US $6 billion to go towards exploration and production works, and the remainder towards refining and petrochemicals.

Previously, where the Iran-Libya sanction had caused delays in a number of field developments and enhanced oil recovery (EOR) projects, consequently deterring foreign capital investment – with the lifting in 2004, Libya is now considered as a highly attractive oil province worldwide.

Given its estimated 36 billion barrels of high-quality oil reserves, many corporations are now eager to return to Libya due to its low cost of oil recovery (as low as US $1 per barrel at some fields), the high quality of its oil, as well as its geographic proximity to European markets.

Libya has operations in Europe through Tamoil. Through Tamoil, Libya is a direct producer and distributor of refined products in Italy, Germany, Switzerland, and Egypt.

Libya’s ability to increase the supply of oil products to European markets has been constrained by the fact that Libya’s refineries are in need of upgrading, specifically in order to meet stricter EU environmental standards in place since 1996.

Ras-Lanuf upgrade

In order to achieve European operating standards, as well as revamp and upgrade Libya’s flagship 220 000 bpd Ras Lanuf refinery, the United Arab Emirate’s Al Ghurair Investments together with its affiliates TransAsia Gas and Star Petro Energy recently signed a 50:50 joint venture agreement worth US $2 billion with Libya’s NOC.

In the most recent of investments in to Libya’s oil and gas sector, together the companies will focus on improving the refinery’s efficiency, while aiming to improve its marketing capability in the long run.

“The agreement is not for increasing capacity, but for increasing economic output,” said an Al Ghurair group spokesperson.

Licensing Rounds/ Field development and exploration

With state-operated oil fields undergoing a 7-8 % natural decline rate, Libya’s need for investments isn’t the country’s only challenge.

Maintaining production at mature fields, while finding new oil and developing new discoveries, is also a priority.

Libya’s first licensing round (since the ending of the US sanction) for oil and gas exploration was held year beginning 2005.

In late 2005, Libya held a second bidding round, with 51 companies taking part and nearly US $500 million worth of new investment flowing into the country as a result.

In November 2005, Repsol YPF (operator) made a discovery, that industry experts believed to be the largest made in Libya for several years.

Extending over two licenses in the Murzuq Basin, the company discovered a significant new oil deposit of light, sweet crude.

Currently producing around 60,000 bpd, production on the licence is expected to increase to somewhere between 100,000 bpd and 150,000 bpd by 2011. Also located in Murzuq Basin is Eni’s Elephant field.

In 1997, British company Lasmo, along with Eni and a group of five South Korean companies, announced that it had discovered large recoverable crude reserves (around 700 million barrels), 465 miles south of Tripoli.

“The success of well F2-NC174 confirms the substantial size of the Elephant field, the largest discovery in Libya for some 13 years.

The thickness of pay and the quality of the reservoir in the appraisal well were better than expected and have led us to increase our estimate of the reserve potential of this major new field,” said John Hogan, Lasmo’s (then) CEO, in a statement.

Lasmo, which was purchased by Eni in 2001, estimated that production from the elephant field would cost US $1 per barrel. Production began in February 2004 at around 10 000 bpd.

In 2006, Eni indicated that Elephant was producing at around 125,000 bpd, and the company hopes to see the field reach full capacity of 150,000 bpd by mid-2008.

The outlook

With renewed interest and success in oil and gas exploration and production in Libya, much needed investment is once again flowing into the beleaguered national oil sector.

International attention and a sustained high oil price suggest the technology and skills required to make the most of Libya’s mature fields and exploit its gas reserves will come rapidly, and allow the North African state to return to the petrochemical big league.