World Report

Foreign investment could take production of crude back to the peak levels of 30 years ago

The state-owned National Oil Corporation (NOC) has recently signed a major exploration and development deal with Shell

ibya’s current output of crude oil stands at around 1.4 million barrels a day (b/d) – against a capacity of 1.7 million b/d. This is expected to rise significantly over the coming years, however, as Tripoli invites more foreign investment to develop new and existing fields.

Although production is substantial, it is still way down on former levels when Libya led the world – back in the early 1970s crude oil production peaked at around 3.3 million b/d. This decline, prompted by the direct and indirect effects of sanctions, has left the energy sector starved of technology and in serious need of an overhaul.
The renewal of the petroleum sector is one of the government’s most pressing priorities. With proven reserves of 36 billion barrels, and up to 100 billion barrels in potential reserves, there is no shortage of interest from international companies.

According to the country’s top energy official, Fathi H. Ben Shatwan, Secretary of the General Popular Committee for Energy, oil production capacity could again rise to 3 million b/d within a few short years given the right level of investment. The first step is to raise capacity to 2 million b/d and at the same time open negotiations with OPEC for an increase in the country’s production quota.

“We are going to negotiate with OPEC on the basis that we have a history of producing in large amounts and that we have ample reserves that stand at more than 100 billion barrels,” he says. “This will allow us to negotiate changes in the quota.”

After years of sanctions, British and American oil companies are certainly keen to make up for lost time and to establish a foothold in the lucrative and largely untapped hydrocarbons sector. In March, Shell became the first major British player to sign a firm contract with the state-owned National Oil Corporation (NOC) to pursue upstream oil and gas initiatives.

The deal, announced at the time of Tony Blair’s visit to Tripoli, covers onshore exploration and the development of liquefied natural gas (LNG) facilities. It provides a roadmap for future developments between the two sides with negotiations on specific projects ongoing.

US firms are keen to pick up where they left off. Several energy majors from across the Atlantic, including Amerada Hess, ConocoPhillips and Marathon Oil, were part of the country’s largest oil producing joint venture before the political winds turned.

As well as revised fiscal terms to make investment more palatable, and its substantial reserves profile, Libya’s main attraction is its low cost of production, an average of just £1.7 per barrel. This means that foreign firms can achieve a high return on their investment in a relatively short space of time.

Many European firms are already well entrenched. Italy’s Agip is the country’s leading foreign oil company with a multi-billion pound integrated energy investment programme already under way.

Abdulla Salem El-Badri
Chairman of Noc Management Committee
‘A lot of exploration is to be done, which enhances the chance of success’

NOC’s chairman Abdulla Salem El-Badri (INTERVIEW) says the current focus is to entice interest through the revised Exploration and Production Sharing Agreement, known as EPSA IV. The new legislation will be used to get international oil companies to bid on 15 exploration blocks scattered throughout the country. It will be the first open bidding round involving both American and European groups for many years.

Mr El-Badri is confident that the response from the industry will be positive given the potential reserves on offer. “I believe that most of our basins are under-explored meaning that there is a lot of exploration work to do which, of course, enhances the chances of success.” The proximity of the European market, the destination for much of Libya’s crude oil, is another major consideration.

Mr El-Badri hopes to see production climb to 2 million b/d by 2007, based on the development of existing reservoirs. “With an additional investment of £5.6 billion we expect to increase our production to the 3 million b/d level by both upgrading our existing fields’ capacity by infill drilling and by finding new reserves through our exploration efforts,” he says.

NOC is also keen to channel investment into Libya’s ageing oil-refining infrastructure. As well as the modernisation of the three existing refineries this could also mean the creation of several new facilities to handle the anticipated leap in production volumes.

In addition to its substantial reserves, Libya is attractive for low production costs

Though oil is still the mainstay of the economy, Libya is increasingly turning its attentions to natural gas as a means of diversification. Agip’s Western Desert gas project, now under construction, plans to export as much as 8 billion cubic metres of Libyan gas every year via a pipeline under the Mediterranean Sea to Italy.

Meanwhile, Shell has taken the initiative in the race to ramp up the country’s modest LNG output, regarded as a major future opportunity area – neighbours Algeria and Egypt are both developing new LNG facilities as the market for imported gas in Europe and the US takes off.