LIBYA - Part 1 - The Prospects.

Libya has the capacity to produce more than 1.9m b/d of crude oil, and its output exceeds 1.8m b/d. Its capacity in 2000 did not reach the 2m b/d target set by the political leadership in the late 1990s. This could be exceeded later in 2007 and may reach more than 2.5m b/d by 2010. Libya's oil production capacity has fallen from a peak of 3.3m b/d in late 1970s, months after Col. Mu'ammar al-Qadhafi and fellow military officers staged a coup d'etat against the monarchy.

The country's international isolation ended on April 5, 1999, when the UN Security Council (UNSC) suspended sanctions based on resolutions 731 (1992), 748 (1992) and 883 (1993) - after Tripoli handed over the two suspects in the Lockerbie airliner bombing for trial by Scottish prosecutors at Camp Zeist, the Netherlands.

Libya's economic prospects brightened shortly after the UN sanctions were suspended. They brightened further in late 2003, when Libya formally announced it was getting rid of its weapons of mass destruction (WMD) in agreement with the US and UK. The development coincided with a bigger rise in crude oil prices as a result of an OPEC price defence strategy based on restraining supplies. Things improved further in the subsequent years (see news1Libya-UStradeBoomJuly2-07). This OPEC strategy is to continue at least through the coming few years. Higher oil income has made Libya a most attractive market for foreign suppliers and contractors (see Downstream Trends in down1-LibEnrBaseJul2-07).

With a rich geology - almost 75% of Libya has not been explored - Tripoli has been making repeated efforts to bring in as many foreign investors as possible. Until major changes announced early in 2005, foreign firms had been put off by an inefficient administration and a stifling bureaucracy. Also there had been considerable uncertainty about the E&P prospects as Tripoli was yet to come up with a long-promised Petroleum Law offering international oil companies (IOCs) additional incentives (see Gas Market Trends in gmt1LibGeo-Jul2-07).

A small number of onshore fields account for the bulk of oil production in Libya. The main oil producing regions onshore are the basins of Sirte, Ghadames and Murzuk to the west. The main offshore oil producing area is the Gulf of Gabes, including a block in the north shared with Tunisia (see profiles of the oil and gas fields in Part 2 next week).

Libya exports over 1.5m b/d of crude oil and 45,000 b/d of refined oil products, plus limited volumes of gas liquids (NGLs). From 2004, it has been exporting natural gas by pipeline to Italy. A priority in Libya's export strategy is a form of integration between its upstream sector and the oil and gas markets of Europe (see Part 3).

There is a vague separation in Libya between the political leadership and the decision makers for the petroleum sector. People close to Qadhafi, including some of his seven sons and at least one daughter, have been interfering with the decision making system in the petroleum sector (see who's who in Part 4).