Libya is one of the most attractive locations for oil
exploration in the world, according to recent sector analysis.
Libya is Africa's biggest oil producer and Europe's biggest
North African oil supplier. It provides extremely high
grade, sweet crude. It has very low production costs and
the oilfields are close to the refineries and markets
of Europe. In addition, despite almost half a century
of exploration, Libya remains largely unexplored with
vast oil and gas potential.
With only 30% of its territory covered by exploration
contracts, this OPEC member state has to face large queues
of investors eager to participate in their multiple projects,
including the until recently ignored exploitation of their
gas fields: "After the sanctions period we have launched
an important discovery and investment program in the sector,
in order to untap the resources in the basins that have
not been explored yet", comments Dr.
Abdelhafid Al Zlitnei, chairman of the National Oil
Corporation.
This organization plays the role of the regulator and
at the same time the biggest oil company operating in
the country, working through joint ventures with foreign
oil companies as well as having a number of subsidiary
companies which are active in various areas of the oil
industry, lubricant base oil production and in the petrochemicals
sector. Through production sharing agreements, NOC controls
about three quarters of the oil produced in Libya.
Libya's oil reserves are located mainly onshore in three
main areas: The western fairway (Samah, Beida, Raguba,
Dahra-Hofra and Bahi oilfields), the north-centre of
the country (the giant oilfields Defa-Wafa and Nasser,
and the large gas field Hateiba) and an easterly trend
(Sarir, Messla, Gialo, Bu Attifel, Intisar, Nafoora-Augila,
Amal fields). Only 25% of Libya's area is covered by
agreements with oil companies. Of Libya's existing onshore
oilfields, 12 have reserves of 1 billion barrels or
more, and two have reserves of 500 million to 1 billion
barrels. Most oilfields in Libya have lives of about
33 years and with the exception of Murzuq, most of the
oilfields were discovered between 1956 and 1972. The
priority for exploration onshore includes new areas
in the Syrte, Ghadames and Murzuq Basins and in unexplored
areas such as Kufra and Cyrenaica. Existing oil field
life could also be greatly extended by the application
of enhanced oil recovery techniques. Libya faces the
challenge of maintaining production at its mature fields
such as Brega and Sarir, Waha and Zuetina and bringing
new fields such as Murzuk-El Sharara and Mabruk on line.
Offshore there is a relatively narrow continental shelf
and slope in the Mediterranean and the Gulf of Syrte.
The largest offshore field is El Bouri, which has proven
reserves of 2 billion barrels and a possible 5 billion
barrels of oil, and 2.5 Tcf of gas. This field, discovered
by Agip-ENI in 1976 is central to Libya's plans.
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 the
U.S. trade embargo begun in 1981. Five other U.S. companies
(Amerada 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) travelled
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 former head of NOC, Abdullah al-Badri, stated
that if U.S. companies return to Libya, they will return
to the fields they used to operate in the country. However,
in the first part of 2001, Libya contacted the U.S.
companies and indicated that, given its desire to develop
their fields, Libya was considering transferring them
to European companies, what has no occurred yet.
Overall, Libya would like to increase the country's
oil production capacity from 1.5-1.6 million bbl/d at
present to 2 million bbl/d by 2003. According to a sector
analysis, in order to achieve its oil sector goals,
Libya would require as much as USD 10 billions in foreign
investment through 2010. Around USD 6 billion of this
would go towards exploration and production, the rest
going towards refining and petrochemicals. But these
numbers are proving to be too cautious. To put an example
of the amounts at stake, their biggest partner, the
Italian operator Agip, is launching a very ambitious
project in utilising gas that would alone require 5
billion USD. That is only the beginning. Finally, in
the downstream activities, the Ras al Lanouf petrochemicals
complex, with USD 7 billion already invested, looks
the most appealing for foreign investors.
With state-operated oil fields undergoing a 7%-8% natural
decline rate, Libya depends heavily on foreign companies
and workers. The major foreign companies include Spain's
Repsol-YPF (150-200,000 bbl/d of output, mainly at the
El Shahara field, plus exploration at blocks NC-186, NC-187,
and North-A), Italy's Agip-ENI (82,000 bbl/d from Bu Attifel,
plus exploration on block NC-174 and in the el-Bouri offshore
field), Austria's OMV, Germany's Wintershall and Veba
(50,000 bbl/d, mainly from its Amal field in Block NC-12),
and multinational TotalFinaElf. |
Dr. Zlitnei
reassures the oil multinationals in their ambitions: "We
have already started and developing programs and extension
of concessions with partners that are working with us
for a number of years, and they have plans now to extend
their activities. We will continue our policy of having
joint ventures with foreign partners, either with the
existing ones or new ones that will come depending on
the commercial activities and the needs of the industry.
So the doors will be open to all participants, but the
ones that are already here have the advantage of their
concession areas, that are quite large, in which they
can carry on doing more exploration and improving its
production."
 Downstream |
Libya's downstream sector was exceptionally hard hit
by the sanctions, specifically U.N. Resolution 883 of
November 11, 1993, which banned Libya from importing
refinery equipment. The country has three domestic refineries,
with a combined nameplate capacity of approximately
348,000 bbl/d, nearly twice the volume of domestic oil
consumption (the rest is exported). These refineries
are the Ras Lanuf refinery, completed in 1984 and located
on the Gulf of Sirte, with a crude oil refining capacity
of 220,000 bbl/d; the Az Zawiya refinery, completed
in 1974 and located in northwestern Libya, with crude
processing capacity of 120,000 bbl/d; and Brega, the
oldest refinery in Libya, located near Tobruk with crude
capacity of 8,400 bbl/d. The refineries, however, are
outdated and desperately in need of upgrading, a matter
which has been difficult as sanctions have made equipment
and technology less accessible. Libya is seeking a comprehensive
upgrade to its entire refining system, with a particular
aim of increasing output of gasoline and other light
products (i.e. jet fuel). Possible projects include
a new 20,000-bbl/d refinery in Sebha (for which Libya
is seeking foreign investment), which would process
crude from the nearby Murzuk field, and a 200,000-bbl/d
export refinery in Misurata.
In February 2001, bids were submitted by engineering
and construction firms on a $400 million project to
upgrade Az Zawiya (including construction of a new 100,000-bbl/d
refinery). "There is also going to be a giant project
in Ras al Lanouf area, which will be in refining and
petrochemicals area. We have already invested 7 billion
USD in this complex, which needs now upgrading, extension
and partnerships in the downstream products (technical,
know how, marketing, transport). The refineries also
need upgrading to meet international environmental standards
for refined products", advances NOC's chairman.
In addition to its domestic refineries, Libya also has
operations in Europe. Libya is a direct producer and
distributor of refined products in Italy, Germany, Switzerland,
and (since early 1998) Egypt. In Italy, Tamoil Italia,
based in Milan, controls about 5% of the country's retail
market for oil products and lubricants, which are distributed
through nearly 2,100 Tamoil service stations. Sanctions
have constrained Libya's ability to increase the supply
of oil products to European markets, however, as Libya's
refineries are badly in need of upgrading, especially
in order to meet stricter EU environmental standards
in place since 1996. In Egypt, Libya is planning to
build gasoline stations on the coastal road linking
the two countries as well as in other areas of Egypt.
The stations are to be run by Libya's foreign oil investment
arm Oilinvest. Libya also reportedly is interested in
purchasing hundreds of "Jet" gasoline stations
in the United Kingdom. Run by a former chairman of NOC,
Mr. Ahmed Abdulkarim, Oilinvest also give security to
the consuming countries that the flow of oil products
will be maintained, something that industrial countries
are very much worried about, in words of Dr. Zlitnei:
"When they see that refineries, the gas station
and the capabilities and the oil supply are kept by
Oilinvest they feel much more stable. Also it helps
to balance the marketing strategy in the international
markets, not only Europe but worldwide. They have plans
also to line up with some upstream activities and partnerships
with other companies in another countries."
| Gas production
and refining |
The proximity of Libya's 60 TCF of gas reserves to southern
European markets is a particularly interesting investment
opportunity. Italy's ENI has recently committed $5.5 billion
to develop two gas fields (one onshore and one offshore)
and to construct a pipeline under the Mediterranean Sea
to Sicily. The 375-mile pipeline will provide a much needed
outlet for North African gas, project assigned to Bouygues.
The total amount of the contract is valued at EUR 133
million and the Joint-Venture's share amounts to EUR 72
million. The project consists of engineering, procurement,
construction, transportation installation and commissioning
support for the sub-sea production system, which will
be installed in a water depth of 190 meters. The implementation
is expected to take 30 months, and is part of the overall
development of the Western Libya Gas Project in Block
NC 41C offshore Libya. The production from the two fields
will be processed at a new plant to be located in Melita,
and the first production was expected in 2003. When completed
this project, Libyan LNG exports could triple, with likely
customers including Spain, Turkey and Italy. |
