LIBYA - European Reliance On Libyan Energy.

Relative to other source countries, Libya now exports small quantities of gas in liquid form to Europe. But ENI's pipeline project will make Libya an important source of gas to Italy and a part of Central Europe, as Edison intends to market some of the Libyan gas in Slovania and Croatia. Italy, one of the main gas consumers in Europe, already relies heavily on Libyan oil (see OMT of this week).

Italy is the third largest market for gas in the European Union, next to Germany and the UK. Gas consumption in Italy is forecast to rise from the current 73 BCM per annum to 100 BCM by 2010, fuelled in part by a boom in gas-fired power generation. Algeria and Russia are currently top gas suppliers to the Italian market.

Libya offers Italy a cheaper alternative to its traditional gas suppliers, thanks to its closer geographical position and massive but largely under-developed reserves. While US sanctions which bar American companies from investing in Libya - as well as Libya not-too-enthusiastic acceptance of foreign investment - are acting as a brake on the growth of the oil and gas sector, the absence of US firms has had a silver lining for European companies. ENI, banking on historical ties with Libya which was once an Italian colony, has been quick to reap the benefits.

That the WLGP is finally moving full steam ahead is a tribute to ENI's patience in overcoming many years of bureaucratic hurdles in Libya, where few people are prepared to make key decisions lest they run foul of Col. Moammar Qadhafi's autocratic rule. The scheme was first conceived in the early 1990s. Nothing much happened until 1999 when the Italian major clinched a landmark gas sales and marketing deal with NOC. That finally paved the way for the development of gas, oil and condensate reserves.

There are, in fact, sufficient reserves of natural gas in Libya to support an export programme for more than 20 BCM/year to Europe, as well as cover Libya's domestic requirements during the next two decades.

Italy, the closest among Libya's markets, has been concerned about the security of gas supplies from Algeria in the event of an Islamic takeover in that country, or from Russia on which the Italians will be depending heavily in the coming decades. This is why Libya has been an attractive proposition for the Italians.

It is proposed, therefore, that the pipeline from Melitah to Sicily should be expanded later on in this decade to reach almost 20 BCM/year to supply Germany and other major European markets. European dependence on Algeria and Russia will be offset by increased supplies from Libya and Norway - as well as Middle East countries like Iran and Central Asia.

NOC executives have said that an expanded pipeline system would be far less expensive than an LNG venture. Such a venture requires costly LNG tankers.

Recoverable reserves of gas in Libya have since 1993 been estimated at 45.87 TCF (1,299 BCM). They had been re-evaluated to 43 TCF in the early 1990s. Experts at NOC believe the real size of Libya's recoverable reserves could be in the range of 50-70 TCF. They would be adequate for a big export programme and for rapidly rising domestic demand.

The restructuring of Libya's hydrocarbon sector in recent years has featured a momentous change in its investment strategy for market shares. Through Oilinvest, Libya has acquired outlets in Europe for a major part of its oil production, with the main base being in Italy (see Downstream Trends of this week).