Overview
Libya is Africa’s major oil producer and one of Europe’s biggest North African oil suppliers. Supplies from North Africa to Europe destinations have the advantage of being both timely and cost effective. Libya’s economy is based on oil and exports contribute between 75% and 90% of State revenues. Libya has proven reserves of 29.5 billion barrels of oil and a production capacity of 1.4 million barrels per day. Italy, Germany, Spain and France account for 74% of Libya’s exports.
Foreign involvement in Libya was severely reduced as a result of the sanctions and embargoes emplaced upon it, especially between the years of 1992 and 1999. Access to oil industry equipment and technology was restricted and Libya is reliant on foreign investment to keep the industry active. After almost 10 years, sanctions were lifted against Libya in 1999, following the extradition of the two suspects in the bombing of the Pan Am flight over Lockerbie. With the suspension of sanctions, oil companies have shown an eagerness to invest in Libya, and a poll of 76 global oil companies (New Ventures 2000 survey) indicated that Libya is the number one preferred location for oil exploration and production.
The reasons for this are numerous. 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.
Libya’s downstream sector was exceptionally hard hit by the sanctions. Its three refineries have a nameplate capacity of 348,000 bpd, which is nearly twice its domestic consumption. The refineries, however, are outdated and desperately in need of upgrading, a matter which has been difficult as sanctions have made equipment and technology less accessible.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 plans to upgrade its existing refineries and build new refineries.
In addition to its oil industry, Libya has an active chemicals industry as well as being one of the larger markets in the African lubricants industry.
Since 1968 the state owned National Oil Company (NOC) together with its 33 subsidiaries has controlled the entire gas and oil industry, both upstream and downstream. NOC and its subsidiaries account for 63% of Libya’s production. The main subsidiary production companies are Arabian Gulf Oil Company (Agoco), Waha Oil Company (WOC) and Sirte Oil Company (SOC). Since 1979, NOC has been allowed to enter into agreements with foreign oil companies. Numerous international companies are engaged in exploration / production sharing agreements with NOC, the largest being Agip-ENI. Oilinvest is the international arm of NOC, with subsidiaries Gatoil and Tamoil controls a network of overseas refineries and manages all international investments. UMM Jawwaby Oil Services is the procurement arm for NOC based in London.
Libya became a member of OPEC in 1962. At the beginning of 1999, Libya’s OPEC production quota was 1.227 MMbpd.
Upstream
Libya’s upstream oil industry is the key to its economy. It is expected to earn $11.7 billion from oil exports in 2000, which is more than double its 1998 earnings. Oil represents more than 95% of total export revenue and 98% of hard currency earnings. Libya produces high quality, low sulphur crude oil that is highly valued. Its proven reserves are 29.5 billion barrels and production is 1.4 million bpd. This represents less than half it peak production output of 3.3 million bpd in 1970, a decrease due mainly to the direct and indirect effects of sanctions. Libya would like to increase production and wants to attract foreign investment to the oil and gas industry.
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 year s and with the exception of Murzuq, most of the oilfields were discovered between 1956 and 1972. NOC’s fields are undergoing natural decline at a rate of 7%-8% per year. The priority for exploration onshore includes new areas in the Sirte, 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’s 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 Sirte. 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.
Downstream
As in the upstream sector, NOC controls the whole of the downstream sector together with its numerous subsidiaries and overseas arms, Umm Jawwaby Oil Services and OilInvest with its two subsidiaries of Gatoil and Tamoil
The Umm Jawwaby Oil Services acts as the Libyan National Oil Company’s procurement arm based in London. Libya is a direct producer and distributor in Italy, Germany, Switzerland and Egypt. In Italy, Tamoil Italia, which is based in Milan and has approximately 2,100 service stations, controls about 5% of the country’s retail market for oil products and lubricants.
The downstream sector was very badly hit by the sanctions and this constrained Libya’s ability to increase its supply of products to Europe.
Legislation
The Licensing authority is the Secretariat of Petroleum Affairs. Since 1973, petroleum rights have been granted under a series of production sharing agreements. Decision number 10 of 1979 allowed NOC to enter into agreements with foreign companies. There have been three exploration and production sharing agreements issued. EPSA-111 remains the model contract in use at the end of 1999. Libya is considering changing the 40-year hydrocarbon legislation to improve terms for foreign investment. The amendments that they are considering will include: access to exploration acreage; small field development; large field incremental production opportunities; increased transparency; and adoption of international competitive bidding practices. In November 1999, in the latest bidding round the acreage was offered under conditions of EPSA-111.
