Libya hopes US firms will participate in first competitive auction

Feb 13, 2004 01:00 AM

As enmity between the United States and Libya starts to give way to cooperation, Libyan oil officials hope US companies will participate in the first competitive auction of contracts to develop the North African country's untapped energy reserves.
Libya's state-run National Oil Co. plans this summer to offer foreign firms the right to bid on five newly designated areas for exploration.

Although a US economic embargo still bars Americans from investing in Libya, the Libyan company's planning director, Tarek Hassan-Beck, said the two sides have resolved most of their remaining differences and could re-establish normal diplomatic relations within weeks.
"I think it's just a matter of paperwork," he said.

US President George W. Bush has welcomed Libya's renunciation of terrorism and programs for weapons of mass destruction, though Washington has yet to announce plans to restore diplomatic ties or lift the embargo it imposed on Libya in 1986. Six members of the US House of Representatives arrived in the Libyan coastal city of Sirte to meet Libyan leader Muammar Gaddafi. Their trip, less than a month after other US lawmakers travelled to Libya, signified a further thawing in relations.
By timing its oil auction for the middle of this year, Libya could be offering the United States a commercial incentive to lift its embargo and restore full relations soon, said Manouchehr Takin, an analyst at the Centre for Global Energy Studies in London.
"The fact that they are doing it this year, and talking about it, is perhaps part of an effort to put pressure on domestic politics in the US," he said.

American firms helped build Libya's oil industry, the country's primary source of revenue, and Libya is eager to see them return. The Libyan oil industry is dominated now by Europeans such as Italy's ENI, which is leading a $ 5 bn project to pipe Libyan natural gas to power plants in southern Europe. However, the National Oil Co. views American technology and training as the best, and Hassan-Beck stressed his desire for US companies to participate in the upcoming auction.
"I certainly hope they would do so. It would be in our favour to have as many companies as possible to compete," he said on the sidelines of an international energy conference in Algiers. Yet Libya wouldn't wait indefinitely to do deals with American oil majors and service firms, he said. "We can't stop the train. We are talking with others."

Libya now produces less than half of its 1970 peak of 3.3 mm bpd of oil. With fresh investment, analysts say it could again become a leading crude producer.
However, the American embargo is undercutting Libya's ambitions. A US law passed in 1996 -- the Iran Libya Sanctions Act -- has stifled even foreign investment by threatening sanctions against any company investing more than $ 40 mm in Libya's energy industry in any one year.
To help speed development of Libya's oil and gas resources, the National Oil Co. plans for the first time to auction drilling rights by inviting firms tomake competitive, sealed bids. It also has a new map of block-shaped areas that it wants to begin offering for exploration.

The National Oil Co. previously awarded contracts based on negotiations with individual firms but has changed its approach because it believes that auctions are a fairer and more transparent way of doing business.
"Five blocks in Libya is just a trickle in the ocean. We want to kick off the process," Hassan-Beck said. "I think very soon after that we could go for another round."

Libya's light, low-sulphur crude commands a premium on world markets, and its production costs, which Hassan-Beck estimated at about $ 3 a barrel, are among the lowest. Its proven reserves of oil are estimated at a modest 30 bn barrels, compared with 113 bn barrels in Iraq, but some analysts indicate that its actual reserves could be much larger.
Together with oil, Libya aims also to increase its exports of gas, including LNG, or LNG. Its current gas pipelines are too small for the volumes it expects to produce, and the National Oil Co. envisions a need for a second export pipeline to Italy.

Given this potential, the four US oil majors that pulled out of Libya in June 1986 have all suggested they would hurry back if given the chance. Occidental Petroleum, based in Los Angeles, made several large discoveries there. Three of its rivals -- Amerada Hess of New York and the Houston-based companies Marathon Oil and Conoco -- operated jointly as the Oasis Group and pumped about 850,000 bpd of crude until sanctions took effect.
"I think that as soon as American businessmen are able to travel to Libya, we will be running out of space in our hotels," Hassan-Beck said. "Perhaps the best investment would be to build more hotels."

Source: Associated Press
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