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Libya - Oil and Gas - Background

The Sirte (Sirt) Basin province ranks 13th among the worlds petroleum provinces, having known reserves of 43.1 billion barrels of oil equivalent (36.7 billion barrels of oil, 37.7 trillion cubic feet of gas, 0.1 billion barrels of natural gas liquids). It includes an area about the size of the Williston Basin of the northern United States and southern Canada (490,000 square kilometers). The province contains one dominant total petroleum system, the Sirte-Zelten, based on geochemical data. The Upper Cretaceous Sirte Shale is the primary hydrocarbon source bed. Reservoirs range in rock type and age from fractured Precambrian basement, clastic reservoirs in the Cambrian-Ordovician Gargaf sandstones, and Lower Cretaceous Nubian (Sarir) Sandstone to Paleocene Zelten Formation and Eocene carbonates commonly in the form of bioherms. More than 23 large oil fields (>100 million barrels of oil equivalent) and 16 giant oil fields (>500 million barrels of oil equivalent) occur in the province.

Approximately 80 percent of Libyas oil is in the eastern region of Cyrenaica. When oil was discovered in Libya in the 1950s, the country was a federation, and the oil revenue from Cyrenaica stayed in Cyrenaica, where King Idris lived and governed, and Tripolitanian and Fezzan lived without. Gaddafi came from Tripolitania.

Libya is a major oil producer but much of its wealth has been squandered over the years. Despite efforts to diversify its economy, the hydrocarbons sector still accounts for 95% of total exports (much of it to Spain and Italy), 30% of GDP and 75% of total fiscal revenue. Oil revenues declined after the Gulf crisis prompting some liberalisation measures to stimulate the retail sector. But key areas of the economy (including oil) are still in state ownership and likely to remain so, while government controls continue to constrain the private sector. Change has been hinted at, but so far there have been no significant moves towards expanding the private sector. This will continue to hinder the realisation of the country's limited economic potential beyond the oil and energy sector. Increased oil prices may have a positive impact on infrastructure development.

Libya produces high-quality, low-sulphur ("sweet") crude oil at very low cost (as low as $1 per barrel at some fields). During the first half of 2003, Libyan oil production was estimated at nearly 1.5 million bbl/d, an increase from 2002 levels but still only about two-fifths of the 3.3 million bbl/d produced in 1970. Libya aims to boost oil output capacity by 175,000 bbl/d in 2004 with the help of European companies. The suspension of UN 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 had deterred foreign capital investment to an extent. Suspension of sanctions means that Libya now can resume purchases of oil industry equipment.

Oil exploration in Libya began in 1955, the key national Petroleum Law No. 25 was enacted in April 1955. Libya's first oil fields were discovered in 1959 (at Amal and Zelten -- now known as Nasser), and oil exports began in 1961. After years of little activity due in part to sanctions, Libya now is attempting to attract foreign companies with improved incentives and production terms. Libya has legislation pending which would grant foreign firms better terms, including access to exploration acreage, small field developments, large field incremental production opportunities, and adoption of international competitive bidding practices.

Libya's oil industry is run by the state-owned National Oil Corporation (NOC), along with smaller subsidiary companies, which combined account for around half of the country's oil output. 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 US oil companies (Exxon and Mobil) withdrew from Libya in 1982, following a US trade embargo begun in 1981. Five other US 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. Conoco, Amerada Hess and Occidental made up the "Oasis Group," which was producing around 850,000 bbl/d in 1986.

In December 1999, US oil company executives from Oasis plus Marathon traveled to Libya, with US government approval, to visit their old oil facilities in the country. The former head of NOC, Abdullah al-Badri, has stated that if US 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 US companies and indicated that, given its desire to develop their fields, Libya was considering transferring them to European companies. In September 2001, Libya stated that the US companies must either make use of their concessions within a year or risk losing them. In March 2002, the US State Department said that it would permit Marathon Oil to hold discussions with Libyan officials while sanctions remain fully in place.

Overall, Libya wanted foreign company help to increase the country's oil production capacity from 1.4 million bbl/d at to 2 million bbl/d over five years, at a cost of perhaps $6 billion. This would restore Libya's oil production capacity to the level of the early 1970s. During the 1970s, the country's revolutionary government imposed 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. In order to achieve its oil sector goals, Libya will require as much as $10 billion in foreign investment through 2010. Around $6 billion of this is to go towards exploration and production, with the rest going towards refining and petrochemicals. In addition, NOC has earmarked $1.5 billion for oil infrastructure investment. In January 2002, NOC appointed Abdel-Hafez Zleitni as its new chairman, with the specific mission to work on attracting foreign investment into the country's oil sector. Combined with the selection of reform-minded Prime Minister Shukri Ghanim, some privatization of the country's oil sector, particularly the downstream sector, now appears more likely than it has in the past.

Continued expansion of natural gas production remains a high priority for Libya for two main reasons. First, Libya has aimed (with limited success) to use natural gas instead of oil domestically, freeing up more oil for export. Second, Libya has vast natural gas reserves and is looking to increase its gas exports, particularly to Europe. Libya's proven natural gas reserves in 2003 are estimated at 46.4 Tcf, but the country's actual gas reserves are largely unexploited (and unexplored), and thought by Libyan experts to be considerably larger, possibly 50-70 Tcf. Major producing fields include Attahadi, Defa-Waha, Hatiba, Zelten, Sahl, and Assumud. To expand its gas production, marketing, and distribution, Libya is looking to foreign participation and investment. In recent years large new discoveries have been made in the Ghadames and el-Bouri fields, as well as in the Sirte basin. Libya also produces a small amount of liquefied petroleum gas (LPG), most of which is consumed by domestic refineries.




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Page last modified: 12-03-2016 19:26:02 ZULU