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Libya has the largest proven oil reserves in Africa. The country hopes to increase oil production capacity through increasing exploration and EOR projects.
Libya, a member of the Organization of Petroleum Exporting Countries (OPEC), holds the largest proven oil reserves in Africa, followed by Nigeria and Algeria (see graph below). According to Oil and Gas Journal (OGJ), Libya had total proven oil reserves of 41.5 billion barrels as of January 2007, up from 39.1 billion barrels in 2006. About 80 percent of Libya’s proven oil reserves are located in the Sirte basin, which is responsible for 90 percent of the country’s oil output. Libya remains "highly unexplored" according to reports by Wood Mackenzie, and only around 25 percent of Libya is covered by exploration agreements with oil companies. The under-exploration of Libya reflects the impact of former sanctions and also stringent fiscal terms imposed by Libya on foreign oil companies.

According to the International Crude Oil Market Handbook, Libya’s National Oil Company (NOC) would like to raise oil production from 1.80 million bbl/d in 2006 to 2 million bbl/d by 2008 and to 3 million bbl/d by 2010-2013. In large part, NOC’s production goals depend on its ability to finance its share of development costs. Future foreign investment into the oil sector is likely, especially with the improved investment climate that stems from the United Nations and United States lifting sanctions. Previously, sanctions had caused delays in a number of field development and EOR projects and had deterred foreign capital investment. Overall, Libya is considered a highly attractive oil province due to its low cost of oil recovery (as low as $1 per barrel at some fields), the high quality of its oil, and its proximity to European markets.

With domestic consumption of 284,000 bbl/d in 2006, Libya had estimated net exports (including all liquids) of 1.525 million bbl/d. According to 2006 official trade data as reported to the Global Trade Atlas, the vast majority of Libyan oil exports are sold to European countries like Italy (495,000 bbl/d), Germany (253,000 bbl/d), Spain (113,000) bbl/d and France (87,000 bbl/d). With the lifting of sanctions against Libya in 2004, the United States has increased its imports of Libyan oil. The United States imported an average of 85,500 bbl/d of total Libyan oil exports in 2006, up from 56,000 bbl/d of oil imports in 2005.

Libyan oil is generally light (high API gravity) and sweet (low sulfur content), but can also be thick and waxy. The country's nine export grades have API gravities that range from 26o – 44o. While the lighter, sweeter grades are generally sold to Europe, the heavier crude oils are often exported to Asian markets. Most Libyan oil is sold on a term basis, including to the country's Oilinvest marketing network in Europe; to companies like Agip, OMV, Repsol YPF, Tupras, CEPSA, and Total; and small volumes to Asian and South African companies.

Field Development and Exploration
With state-operated oil fields undergoing a 7-8 percent natural decline rate, Libya's challenge is maintaining production at mature fields, while finding new oil and developing new discoveries. In November 2005, Repsol YPF (operator) announced that it had discovered a significant new oil deposit of light, sweet crude that extends over two licenses in the Murzuq Basin. Industry experts believe the discovery to be one of the biggest made in Libya for several years. The discovery is partly located in license NC-186, which currently produces around 60,000 bbl/d. Production on the license is expected to increase over the next 4-year period (2007-2011) by 100,000 – 150,000 bbl/d as oil from the discovery comes online. Repsol YPF is joined by a consortium of partners that includes OMV, Total and Norsk Hydro.

Also located in Murzuq Basin is Eni’s Elephant field. In October 1997, an international consortium led by British company Lasmo, along with Eni and a group of five South Korean companies, announced that it had discovered large recoverable crude reserves (around 700 million barrels) at the NC-174 Block, 465 miles south of Tripoli. Lasmo, which was purchased by Eni in 2001, estimated that production from the field would cost around $1 per barrel. Elephant began production in February 2004 at around 10,000 bbl/d. In 2006, Eni indicated that Elephant was producing at around 125,000 bbl/d, and the company was hoping to see the field reach full capacity of 150,000 bbl/d by 2008.

Waha Oil Company’s (WOC) Waha fields currently produce around 350,000 bbl/d, down from around 1 million bbl/d in 1969 and 400,000 bbl/d in 1986. However, WOC expects to increase Waha output by around 200,000 bbl/d over the next couple of years. In 2005, ConocoPhillips and co-venturers reached an agreement with NOC to both return to its operations in Libya and to extend the Waha concession by 25 years. ConocoPhillips operates the Waha fields with a 16.33 percent share in the project. NOC has the largest share of the Waha concession 59.17 percent, and additional partners include Marathon (16.33 percent), and Amerada Hess (8.17 percent).

Refining and Downstream
Libya’s refining sector needs upgrading after years of sanctions.
According to OGJ, Libya has five domestic refineries, with a combined capacity of 378,000 bbl/d. Libya's refineries include: 1) the Ras Lanuf export refinery, completed in 1984 and located on the Gulf of Sirte, with a crude oil refining capacity of 220,000 bbl/d; 2) the Az Zawiya refinery, completed in 1974 and located in northwestern Libya, with crude processing capacity of 120,000 bbl/d; 3) the Tobruk refinery, with crude capacity of 20,000 bbl/d; 4) Brega, the oldest refinery in Libya, located near Tobruk with crude capacity of 10,000 bbl/d; and 5) Sarir, a topping facility with 8,000 bbl/d of capacity.

Libya's refining sector reportedly was impacted by UN sanctions, specifically UN Resolution 883 of November 11, 1993, which banned Libya from importing refinery equipment. Libya is seeking a comprehensive upgrade to its entire refining system, with a particular aim of increasing output of gasoline and other light products (i.e. jet fuel). As of early June 2007, NOC was evaluating investment proposals for upgrading the Ras Lanuf refinery. Total cost of the upgrade is estimated at $2 billion. NOC is also expected to re-tender an engineering, procurement and construction contract for upgrading the Az Zawiya refinery. In addition to refinery upgrades, Tamoil Africa and Occidental Petroleum Corporation reportedly have plans to build new refineries near Melitah.

Overseas Investment
In addition to its domestic refineries, Libya has operations in Europe through its overseas oil retail arm, Tamoil. Through Tamoil, Libya is a direct producer and distributor of refined products in Italy, Germany, Switzerland, and Egypt. Tamoil Italia, based in Milan, controls about 7.5 percent of Italy's retail market for oil products and lubricants, which are distributed through 3,000 Tamoil service stations. Libya's ability to increase the supply of oil products to European markets has been constrained by the fact that Libya's refineries are in need of upgrading, specifically in order to meet stricter EU environmental standards in place since 1996. In June 2007, United States-based Colony Capital reached a agreement to take over 65 percent of Tamoil, while the Libyan government will retain 35 percent. Libya will continue to control Tamoil Africa, which operates retail stations in Egypt and Burkina Faso among other African nations.

Sector Organization
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. Of NOC's subsidiaries, the largest oil producer is the Waha Oil Company (WOC), followed by the Arabian Gulf Oil Company (Agoco), Zueitina Oil Company (ZOC), and Sirte Oil Company (SOC). In addition to NOC’s subsidiaries, several international oil companies are engaged in exploration and production in Libya including Repsol YPF (Spain), Eni (Italy), OMV (Austria), and Total (France).

United States-based oil companies, after the lifting of sanctions in 2004, were allowed back into Libya. In September 2003 the UN Security Council officially lifted its sanctions over Libya. On February 26, 2004, following a declaration by Libya that it would abandon its weapons of mass destruction (WMD) programs and comply with the Nuclear Non-Proliferation Treaty (NNPT), the United States rescinded a ban on travel to Libya and authorized U.S. oil companies with pre-sanctions holdings in Libya to negotiate on their return to the country if and when the United States lifted economic sanctions. On April 23, 2004, the United States eased its economic sanctions against Libya, and the White House issued a press release stating that: “U.S. companies will be able to buy or invest in Libyan oil and products. U.S. commercial banks and other financial service providers will be able to participate in and support these transactions." On the same day, Libya’s NOC announced its first shipment of oil to the United States in over 20 years. On June 28, 2004, the United States and Libya formally resumed diplomatic relations, severed since May 1981. Finally, on September 20, 2004, President Bush signed Executive Order 12543, lifting most remaining U.S. sanctions against Libya and paving the way for U.S. oil companies to try to secure contracts or revive previous contracts for tapping Libya’s oil reserves. The Order also revoked any restrictions on importation of oil products refined in Libya, and unblocked certain assets.

Licensing Rounds
On January 30, 2005, Libya held its first round of oil and natural gas exploration leases since the United States ended sanctions against the country. In October 2005, Libya held a second bidding round under EPSA IV, with 51 companies taking part and nearly $500 million worth of new investment flowing into the country as a result. In December 2006, Libya held its third bidding round; however, production-sharing agreements (PSAs) awarded in the round were still being signed by NOC as of April 2007. Industry experts noted that the third round attracted smaller players, including ones from Russia, as opposed to larger international oil companies (IOCs), which participated in the previous two rounds. In July 2007, Libya plans to announce its fourth round, which is likely to focus on natural gas assets.

Winners of Libyan exploration acreage are determined largely based on how high a share of production a company is willing to offer NOC. Whichever companies offer NOC the greatest share of profits is likely to win. In addition, oilfield developers initially bear 100 percent of costs (exploration, appraisal, training) for a minimum of 5 years, while NOC retains exclusive ownership. Also included in Libyan licensing rounds is open competitive bidding and transparency, joint development and marketing of non-associated natural gas discoveries, standardized terms for exploration and production, and non-recoverable bonuses.

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