The Washington Diplomat / October 2009
By Larry Luxner
Petroleum, which accounts for 70 percent of Libya's GDP, 90 percent of its government revenue and a staggering 98 percent of its export earnings, dominates this North African economy like few other places on Earth.
But the man who oversees Libya's vast energy sector worries what'll happen once the wells run dry.
"I'm sure our oil will be depleted one day — and on that day, you can imagine what the situation will be," says Dr. Shukri Ghanem, president of Libya's state-run National Oil Company (NOC). "This is why we have to do something drastic to diversify our economy, and not resort to handouts and subsidies. We cannot subsidize everything."
But Ghanem has been working hard to turn Libya's natural bounty into a blessing. Ghanem, who served as general secretary of the People's Committee (the equivalent of prime minister) from June 2003 until March 2006, remains one of the country's most important and influential men, though the painful reforms he advocates have earned him plenty of enemies at home.
The 67-year-old petroleum economist spent an hour last month, explaining what Libya must do to boost production while gradually weaning itself off a near-total dependence on hydrocarbons.
"In 1970, we were producing 3.7 million barrels of oil a day, and now we produce less than half of that," he said, noting the heavy toll international sanctions exacted on Libya in the wake of the Lockerbie incident in 1988.
"After the removal of sanctions and the normalization of relations between Libya and the West, we adopted what you may call an open-door policy," said Ghanem. "This involves transparency as well as competititon. We offer concession blocks under what we call open tenders. We announce the tenders, qualify companies and open their offers in front of everyone in complete transparency — and then let the best one win."
Between January 2005 and December 2007, the Libyan government conducted four bidding rounds for crude oil and natural gas under a scheme known as Exploration and Production Sharing Agreement (EPSA-IV).
"Through this method, we were able to entice almost 50 companies to work in Libya, without discrimination as to whether they're American, European or whatever," he said. "We also have companies from Taiwan and mainland China. It doesn't matter, as long as they qualify technically and financially."
Many different types of agreements, concessions and joint ventures remain on the books, some of them dating from the 1950s.
"We've tried to unify the old legal contractual agreements, taking into consideration the important changes that have taken place in the international oil market since then," said Ghanem. "Our objective is to migrate all the agreements towards EPSA-IV. We've been able to succeed with most companies, though we're still negotiating with some of them."
If all goes ahead as planned, the NOC under Ghanem's leadership will tender out more than 100 EPSA agreements over the next 10 years, generating total investment of around $7 billion.
Ghanem discounted persistent rumors that Libya's hydrocarbons sector would be privatized, clarifying that "when we say privatization, we mean services like supplying the industry with spare parts, the distribution of oil or the retail sector" — not production itself.
Asked if he's satisfied with the level of U.S. participation, Ghanem said simply, "oil companies are after oil" regardless of where in the world it happens to be.
"American oil companies were the first to come to Libya in the 1950s, the first to find oil and the first to export. We have a special soft spot for them," he told The Diplomat. "but if they feel they'll make a buck, they'll come here, and if not, they won't — whether I ask them to or not."
He did say that over the past 20 years, the giants of the American petroleum industry could have made major discoveries had they been allowed under U.S. law to operate here.
"For two or three decades, there were no serious exploration plans because of the sanctions," he said. "Libya is better off than other countries, but the easy oil is not there anymore. It's more expensive to find."
He added: "It doesn't really matter whether it is Saudi Arabia, Libya or Algeria. All of our economies are at least 80 percent dependent on petroleum," he said. "This is why some people think oil is a curse rather than a blessing.
Libya is widely regarded as unexplored, though the Murzuq Basin alone is estimated to hold 10 billion barrels of undiscovered recoverable reserves. Both BP and Occidental have their largest international exploration projects in Libya, with many other companies investing billions in exploration.
"It was our plan that by 2012, Libya would be producing three million barrels per day, but this now will take longer for a number of reasons," Ghanem said. "When economies were growing fast, the whole world needed oil. Now, there's surplus capacity all over the world, and budgets are constrained. Our target may not be reached until 2015 or 2016, taking into consideration the international economic situation."
That's not the only factor holding back the expansion of Libya's oil industry. Another is the lack of a decent education system.
"We are very much interested in training Libyans," he said, noting the high percentage of skilled foreigners involved in the oil sector. "One of our biggest problems is the result of 30 years of not teaching English in schools. We are now concentrating on that, and we consider English the most important foreign language."
Ghanem, whose own English is impeccable, was born and raised in Tripoli, attended school at Benghazi University and then went to the United States, where he earned a master's degree in international economics and diplomacy from Tufts University's Fletcher School. Upon returning to Libya, he served as director of foreign trade at the Ministry of Economy and chief adviser to the since-disbanded Ministry of Petroleum.
Among other things, Ghanem was also in charge of the Organization of Petroleum Exporting Countries secretariat in Vienna and headed OPEC's research division. In 2001, Libya nominated him to be OPEC's secretary-general, but that job was eventually given to Venezuela's Ali Rodríguez.
Ghanem said that while OPEC only accounts for 30 percent of today's global oil production, the 12-nation cartel remains important "because it tries to create an instrument for stabilization" — even if some members disagree or cheat on their quotas from time to time.
"When you are in a group working together, you have to accept the others' point of view. They all come to a consensus, a middle ground that does not please everyone. If you get 80 percent compromise, that's an achievement," he said, smiling. "Even with your wife, you cannot have 100 percent agreement."