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Foreign Oil Companies See Lucrative Opportunity in Libya
The Washington Diplomat / October 2009

By Larry Luxner

ESSIDER, Libya Captain Ali Kikli may not be a politician or a government minister with a chauffeur-driven limo, but here at the remote Essider oil terminal 650 kilometers east of Tripoli, he's clearly the boss.

"This complex represents many billions of dollars of investment. It's the largest oil terminal on the Mediterranean," Kikli says proudly, as he takes his visitor on a tour of the sprawling, carefully guarded coastal facility which exports one-third of Libya's petroleum.

The captain shows off Essider's tank farm, which consists of 18 enormous white cylinders that can store up to six million barrels of oil. Next is the loading dock, where on a typical day 350,000 barrels of oil are pumped onto specialized tanker vessels for transport to Turkey, Germany, Italy, France and even China.

Last on the tour is Essider's administration building. The 1960s-style structure is the nucleus of an operation that involves 450 people including customs, immigration, security, police officers and employees of Waha Oil Co., which owns the terminal.

"We're like a self-contained city. We even produce our own electricity," says Kikli, declaring his port in compliance with international maritime protocols issued in the wake of 9/11. "All of us are against terrorism, but with the security we have here day and night, I don't think anything will happen to this place."

The captain, a 1972 graduate of Kings Point Academy in Great Neck, N.Y., is old enough to remember the good old days, when American oil companies dominated his country's petroleum sector and Libya was producing 3.7 million barrels per day (bpd).

But that was before the Berlin disco attack, Lockerbie and United Nations sanctions turned Libya into an international pariah. Most of the world's oil giants left Libya, though a few European holdouts including Italy's Agip and French energy conglomerate Total stayed on despite the sanctions.

With the doors open once again, the world's oil energy giants are tripping over each other in a race to get a piece of the action. These include well-known multinationals like Occidental Petroleum, ExxonMobil and Royal Dutch Shell, as well as overseas firms like Brazil's Petrobras, Canada's Verenex, Japan's Nippon Oil and Russia's Gazprom.

And with good reason. Libya posseses 42 percent of Africa's oil reserves and 3.11 percent of the world total. At the end of 2008, current proven and recoverable oil reserves were estimated at 43.7 billion barrels, up from 29.5 billion barrels in 1997. In 2008, Libya's production came to around 1.8 million bpd, translating into annual oil revenues of $46 billion, or about $7,900 per citizen roughly the same per-capita amount as Saudi Arabia.

Libya's gas reserves are estimated at 1.5 trillion cubic meters, the fourth-largest in Africa and 0.8 percent of total world proven reserves. In addition, Libya is believed to possess at least 3.0 trillion cubic meters of unproven reserves.

In 1971, Libya became the second country in the world to export liquefied natural gas (LNG). It now pipes gas to Italy via a $6.6 billion pipeline that's 75 percent owned by Italian energy conglomerate Eni. Libya also ships LNG to Spain, though huge potential exists for gas to become a major source of the country's export revenue.

The International Energy Agency estimates that, once Libya is fully explored, a total of 100 billion barrels of oil equivalent will have been discovered.

Steve Guidry is president of Marathon Oil Libya Ltd., one of three U.S. entities that comprise the Waha venture.

"Libya has a longstanding, robust infrastructure to get oil out of the ground and move it to market," Guidry told The Diplomat from his office at Tripoli's Corinthia Bab Africa Hotel. "Their crude is highly rated and the reservoirs themselves are world-class, though many of them are undeveloped."

Waha currently employs 3,500 people, 92 percent of them Libyans. Known as Oasis in pre-sanction days, it operates four oilfields and is the second-biggest oil producer in Libya. Its majority stakeholder is Libya's National Oil Corp. (59 percent), with minority shares owned by Marathon (16.5 percent), ConocoPhillips (16.5 percent) and Hess (8 percent).

Guidry, whose career has taken him from the oil patches of his native Louisiana to Equatorial Guinea, has been in Tripoli for eight months. He declined to say how much Marathon or its partners are investing in Waha, or how much they expect to make.

"Our group re-entered Libya in December 2005, so in many ways we're still in the early stages," he said. "When we left, the Americans were deeply embedded in the operation. We're back as as owner, in an oversight role, but we're nowhere near as embedded in the operation as we used to be."

In fact, a visit to the Gialo concession in the Sahara Desert south of Benghazi revealed almost no Americans in the field though Vietnamese and Filipino workers were seen doing everything from welding pipelines to serving food at the crowded cafeteria-style mess hall during lunchtime.

Waha currently produces 315,000 bpd, with capacity of 380,000 bpd. Its goal is to produce 650,000 bpd by 2014. Fields operated by Occidental Petroleum are currently producing around 100,000 bpd, with that number rising to 300,000 bpd by 2013. Spain's Repsol and PetroCanada are also major oil producers.

On the exploration side, BP is spending $1.3 billion to scour 14,000 square kilometers of Libyan desert (about the size of Kuwait) and 30,000 square kilometers offshore (about the size of Maryland) for untapped oil. If successful, the venture could mean billions more for the British company whose assets were nationalized 33 years earlier by the Qaddafi regime.

"From an exploration standpoint, I couldn't be in a better place," said Hugh McDowell, president and general manager of BP Exploration Libya Ltd. "There's a lot of hope that we can take Libya to the next level. We'd be happy either way whether we find oil or gas because that would put Libya in a strategic position to supply gas to Europe."

McDowell, whose office has four clocks on the wall showing the time in Tripoli, London, Greenwich and Houston, said BP Libya currently has 70 employees, and will probably have 120 by the time it starts drilling next year.

"BP was here back in the late '60s. We discovered the largest fields in the country," he said. "After being absent for a long time more than 30 years we came back at the end of 2007 and have been on the ground since early last year, carrying out exploration. So far, we've invested only 10 percent of that $1.3 billion, with the lion's share to come over the next seven years."

Likewise, in July, U.S. oil giant ExxonMobil announced it had begun drilling its first deepwater exploration well, code-named A1-20/3, in the offshore Sirte Basin.

"We are pleased to start drilling our first deepwater exploration well in Libya, based on the rigorous technical work conducted by our Libyan national and expatriate scientists, and in collaboration with the NOC," said Phil Goss, president of ExxonMobil Libya.

Downstream, there is great interest in petrochemicals, refineries and service stations. In April 2007, NOC and Dow Chemical announced the formation of a venture to operate and expand the Ras Lanuf petrochemical complex just east of the Essider oil terminal.

That venture, whose dollar value hasn't been released, gives the largest U.S. chemical company easier access to European markets and provides it with cheaper feedstocks, helping Dow compete in polyethylene production against other Mideastern chemical producers.

But the industry is said to suffer significant infrastructure problems. Libya's refining capacity has remained relatively constant at around 380,000 bpd only a fraction of its daily production levels of 1.8 million bpd.

Dr. Shokri Ghanem, chairman of the state-run National Oil Corp., said in early 2007 that Libya would have to invest $9 billion in refineries, petrochemical plants and fertilizer factories in order to fix the most urgent problems. Other NOC sources quoted by local media said the actual costs may be double that, though specific details of timing and possible foreign invovlement in that sector have not been announced.

While McDowell declined to get into politics, he did say one of the biggest issues confronting Libya is the development of oil as a national industry.

"For 30 years, they really struggled to get training and international support," he said. "During that time, the oil and gas industry moved into a different world, and health and safety became a huge factor. There's a great need to develop manpower."

To that end, BP has made a $50 million commitment to help NOC develop its personnel through training and education.

"This is a very large project for BP. We're in exploration, so the future's ahead of us," said the oilman, who worked in Azerbaijan before coming to Libya. "It's a bit like the CIS countries off-limits for a long time, and now we're back. But we have to go through the exploration side of it first. There are no guarantees here."

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