LIBYA - Part 1 - The Prospects.

Libya is producing about 1.3 million b/d of oil, compared to a sustainable capacity of a little over 1.5m b/d and an OPEC quota of 1.227m b/d. Its capacity by 2000 is not likely to reach the 2m b/d target set by the political leadership in recent years.

The country's international isolation ended on April 5, 1999, when the UN Security Council suspended sanctions based on resolutions 731 (1992), 748 (1992) and 883 (1993) - after Tripoli released the two suspects in the Lockerbie airliner bombing for trial by Scottish prosecutors at Camp Zeist, the Netherlands. The UN Secretary-General, Kofi Annan, was then asked by the Security Council to report to it within 90 days on Libya's commitment to ending all forms of terrorist action, assistance to rerrorist groups and recunciation of terrorism.

On June 11, US and Libyan diplomats in New York held their first round of official talks in nearly 20 years, with speculation that Washington might eventually lift unilateral sanctions on Tripoli. By then, Libyan leader Col. Moammar Qadhafi had begun a new high-profile role as peacemaker for Congo - where seven African states were drawn into potentially one of the most dangerous conflicts in the world. Libya's political conditions had begun to improve considerably.

Libya's economic prospects brightened shortly after the UN sanctions were suspended. The development coincided with a rise in crude oil prices as a result of a new OPEC strategy to keep supplies restrained until end-March 2000. Increased income this year will make Libya the most attractive market in North Africa (see Downstream Trends).

With a rich geology, Tripoli wants to make its E&P regime more attractive in order to bring in the biggest number of foreign investors possible. Officials from the state-owned National Oil Co. (NOC) used an oil and gas conference in Geneva in April 1999 to highlight forthcoming changes to the country's 40- year-old Petroleum Law. They said new incentives and improved E&P terms, in a system that would be the best of its kind in North Africa, would be announced in early 2000 (see Gas Market Trends).

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 Two).

Libya exports about 1 million b/d of crude oil and 150,000 b/d of refined oil products, plus limited volumes of liquefied natural gas (LNG) and gas liquids (NGLs). From 2003, it will be exporting natural gas by pipeline to Italy and the volume from 2004 will be about 8 BCM/year. A priority in Libya's export strategy is to maintain a form of integration between its upstream sector and the oil and gas markets of Europe (see Part Three).

There is a dividing line in Libya between the political leadership and the decision makers for the hydrocarbon sector. Whereas the former are somewhat doctrinaire with expensive socialist and pan-Arabist tendencies, the latter are pragmatic. Although the main decisions for the hydrocarbon sector are taken by the political leadership, the executives of this sector have been empowered to act independently in implementing them (see Part Four).