This article is extracted from PESGB Monthly Newsletter, February 2007 and republished with permission.
Libya - Land of Emerging Opportunities
Dimitri Massaras, Regional Manager North Africa - IHS, Geneva
Introduction
Libya has emerged after nearly 20 years of trade sanctions as one of the most attractive countries in which to invest exploration funds. As a result, the country has attracted high-levels of interest, evidenced by the fierce competition for acreage in the most recent bid rounds.
Petroleum exploration, production, refining and marketing of oil and natural gas as well as LNG are the strongest elements in the Libyan economy, and account for about 95% of foreign currency earnings, and about 70% of government revenues.
The upstream and downstream petroleum industry is the key to the national economy, and in 2006 accounted for over $30 billion from exports of crude oil, natural gas and refined petroleum products.
The E&P players
A number of foreign oil companies are involved in exploration and production activities in Libya including, Agip, BG, Chevron, Eni, ExxonMobil, Gazprom, Hellenic Petroleum, Hydro, Impex, Joint Oil, Mitsubishi, Mitsui Oil, Liwa Energy, Nimir Petroleum, Nippon, OMV, OVL, Oil Search, Occidental Petroleum Pertamina, Petrobras, Petro-Canada, Repsol, RWE-Dea, Sonatrach, Shell, Statoil, Tatneft, Teikoku, Total, Veba, Verenex, Woodside and Wintershall.
In addition, the National Oil Corporation (NOC) of Libya has several local subsidiary companies, active in exploration and production: these include Agoco, Sirte, Waha, and Zueitina.
In 2005, the US companies Oasis Oil Company and Occidental Petroleum were able to return to Libya after nearly 20 years of trade and economic sanctions imposed by the US and the UN.
New NOC Chairman
In early 2005, Mr. Shokri Ghanem was appointed as the new Chairman of the National Oil Corporation (NOC). He has been instrumental in the introduction of structural economic reforms, and was also intimately involved in the negotiations to lift trade sanctions.
Petroleum Legislation
Petroleum exploration and production are broadly governed by Petroleum Law 25 of 1955 and the regulations issued under it. Until the late 1960s, a concession system existed with no direct state participation. However, in 1973, existing regulations were amalgamated and a decree issued establishing the basis for the award of petroleum rights under Exploration and Production Sharing Agreements (EPSAs), with fiscal and contractual terms in place of concessions.
In August 1979, the General Secretariat of Congress issued Decision Number 10 under which the NOC was empowered to enter into EPSAs with private oil companies to undertake exploration at their own risk and expense. Such EPSAs remain the basis of licensing today, and are subject to approval by the General People's Committee or Congress.
EPSA
EPSA I, the first version, was launched in 1974, and provided for sharing of gross production between the contracting parties. It was followed by EPSA II in 1981, which improved the contractual terms in favour of the NOC.
EPSA III was introduced in 1988 providing for flexible contract terms, and introduced cost recovery and sharing of remaining production between the contracting parties.
In 2004, the NOC introduced EPSA IV fiscal terms, and has conducted three very successful licence rounds, gauged in terms of signature bonuses paid, work commitments and production share allocated to the NOC.
The first of these rounds closed in January 2005, with the award of 15 areas and blocks to various international oil companies. The total commitments for investment amounted to $298 million and the total signature bonuses paid was $133 million, ranging from $0.25 to 25.6 million and averaging about $8.9 million per block. In addition, the winning groups made commitments to drill 24 exploration wells, acquire 2,850 sq km of 3D seismic and 24,000 km of 2D seismic. Most companies have agreed to give the NOC a share ranging from 61 to 89%. The offshore Sirte basin blocks appear to be the most prospective, both in terms of prospect sizes as well as chance of success.
During the second bid round, which closed in November 2005, the NOC signed contracts for 23 packages of blocks. Fifty-one international oil companies submitted a total of 97 bids for 23 out of the 26 packages of 44 blocks that were on offer. The grand total signature bonus offered was $103million. The total work program and commitments for the 23 packages that received offers amount to 27,850 km of 2D seismic, 7,600 sq km of 3D seismic, drilling of 32 wells for a minimum investment of $430.5 million.
The third bid round closed in December 2006. The NOC awarded an additional 10 contracts. Signature bonuses promised amount to $88.1, million along with commitments to acquire 41,000 km of 2D seismic, 10,000 sq km of 3D seismic and drill 35 exploration wells.
While the EPSA IV rounds were very good for the NOC, it will be very difficult for most of the ‘winners’ to turn the contracts into profitable deals, even with the high price for crude oil. By any measure of performance, a major discovery will be required to make the deals profitable. In any event, the offshore acreage holds the best prospects, and several companies, including Hess, Repsol and Woodside, plan to test the offshore potential in 2007.
Liquids production
Libya produces high-quality, low-sulphur crude oil that is highly valued. During 2006, average daily production was about 1.8 MMb of liquids, or nearly one-half of the peak production output of 3.3 MMb/d attained back in 1970. Libya has signalled its ambitious plans to increase the crude oil production to 2.0 MMb/d of liquids by 2010, and to 3.0 MMb/d in the longer term. In order to accomplish this ambitious goal, Libya estimates it needs to attract at least $30 billion in foreign direct investment to the petroleum sector alone (including upstream, downstream, refining as well as petrochemicals). The planned DPSA projects (see below) are to contribute a major portion of the projected increase in liquids production, and to increase recoverable reserves.
Liquids reserves
Proven and probable (2P) liquid reserves (crude oil, condensate and LPG) are estimated at about 15-20 billion barrels. However, OPEC and the NOC indicated in the past that liquid reserves could be as high as 35 to 39 Bb.
Natural gas production
During 2006, the average natural gas production rate increased to 2.1 Bcf per day, or 765 Bcf for the year. Of this annual total, 415 Bcf was associated gas produced along with crude oil. The remaining 349 Bcf was non-associated gas. Most of the natural gas (563 Bcf) was produced onshore and the remaining 203 Bcf was produced offshore.
Gas exploitation is in its infancy, with only six fields in the Sirte basin feeding the Marsa El Brega LNG plant, built in 1970. Shell and the NOC have plans to expand plant capacity to 3.5 MMt/y of LNG in the near term. During 2006, about 65 Bcf of gas originating from the Sirte Oil Company gas fields in Sirte Basin Block 6 was converted into LNG.
The natural gas potential is substantial, and remains unexplored and unexploited. Proven plus probable natural gas reserves are estimated in the 50 Tcf range, and could be considerably larger, possibly 100 Tcf. The NOC cites gas reserves as 47 Tcf, of which 35 Tcf (75%) is free gas and 12 Tcf (25%) is associated gas. Only 10 Tcf (21.5%) of the total proven reserves are considered developed, and 16 Tcf (34%) are considered underdeveloped. The remaining 20 Tcf is considered undeveloped.
Production of natural gas was doubled in 2005, when the Eni-operated West Libya Gas Project (WLGP) became fully-operational. Two large fields feed the huge project, namely, the onshore Al-Wafa gas and condensate field located in the Ghadames basin, and the Bahr Essalam gas field located offshore in the Pelagian basin. Gas is exported to Italy via the newly-installed ‘Greenstream’ gas export pipeline (520 km) under the Mediterranean Sea. The WLGP added about 1.0 Bcf/d of natural gas production, and during 2006 the WLGP produced the equivalent of 300,000 bo/d. Project development costs were $5.6 billion. Gas and liquids from the onshore Wafa field and the Bahr Essalam field is transported by two new (gas and liquids) export pipelines to Mellitah near the coastline for processing.
Plans are to double the throughput of the ‘Greenstream' system from 445 to 740 MMcf/d in the near term. With the additional production from both fields, operator Agip was producing around 300,000 boe/d during 2006.
DEPSA
The NOC is slowly progressing with the Development & Production Sharing Agreement (or DEPSA). Plans have been delayed because the DPSA negotiations committee of the NOC is debating on how best to allocate oil and gas fields for redevelopment.
Production Service Contracts (PSCs) are also under consideration for DEPSA. Detailed work plans have been under preparation for a few years, but a decision is still pending on how to structure the DPSA contracts. Under consideration are two options. Option one is to place the various oil and gas fields to be redeveloped in a DPSA licence round, using the same method and approach as the EPSA IV licence rounds which were held lat year. Option two involves direct negotiations with various international oil companies considered capable of putting together the human, technical and financial resources in order to accomplish such challenging and costly redevelopment projects, which will require billions in investment.
Acreage leasing
At the end of 2006, the total acreage held under lease was 730,211 sq km, versus 472,231 sq km at the end of 2004. The holdings are distributed in all six petroleum basins including 579,544 sq km onshore, and 150,667 sq km offshore along the continental shelf and deep-waters, which is a new trend in acreage leasing.
Regional geology
There are six sedimentary basins in Libya, four of which have proven petroleum systems. These are in order of importance, Sirte, Murzuq, Ghadames, Pelagian, Cyrenaica and Kufra. The Sirte Basin extends offshore, as the Pelagian basin.
Refining
Libya has a total of five oil refineries of which two are relatively large, and three very small. Together the five refineries operate at 340,000 b/d, or 10% less than the total name-plate capacity of 380,000 b/d. The two larger refineries are located at Ras Lanuf and El Zawiya, and the three small refineries are located at Tubruk, Sarir and Marsa El Brega. The total processing capacity of 380,000 b/d is nearly twice the domestic refined petroleum products requirement of 165,000 b/d, which includes gasoline, kerosene and residual fuel oil. The remaining 215,000 b/d of refined products is exported, mainly to Europe.
Pipelines
Libya's crude oil, natural gas and refined products pipeline transportation network is very extensive, and as oil production has declined since the late 1970s, there is sufficient spare capacity available for new production, especially in the Sirte basin. However the Murzuq basin system is running at full capacity. The main crude pipeline system in the Sirte basin all runs to oil loading terminals located on the coast. Five new pipelines totalling 2,000 km were installed recently as part of the WLGP, the larger one being the ‘Greenstream’ natural gas export line to Italy (520 km, 32-inch).
LNG
Shell and the NOC have signed a long-term agreement relating to an integrated gas development and LNG facility upgrade project in the Sirte basin. The project comprises of three parts; the renovation of the existing LNG plant at Marsa El-Brega, the possible construction of a new LNG plant, and the exploration & development of five blocks located near-by in the prolific Sirte basin. Marsa El-Brega is Libya's only LNG plant, producing only 700 tonnes/year of LNG, using about 65 Bcf of natural gas during 2006.
The Shell agreement calls for the plant to be upgraded and expanded, and its capacity could be stepped up to 3.2 MMt/y. The work is expected to cost at least $105 million and possibly as much as $450 million if a new plant is built, with Shell covering the full cost.
For further information, please contact
Andrew Hayman - IHS, Geneva
Phone: +41 22 721 1717
Email: andrew.hayman@ihs.com
Website: www.ihs.com/energy