LIBYA - The Energy Base.

The energy market in Libya remains small relative to the size of its petroleum exports, although it is growing at a rapid pace. Local energy consumption in 2003 is to reach about 15.4 million tons of oil equivalent, compared to 10.9m toe in 1997 and 9.2m toe in 1990. The state-owned National Oil Co. (NOC) says energy consumption is rising at the average rate of 7% per annum.

A switch to natural gas in recent years has curbed the growth of oil consumption, which in the 1970s and the early 1980s was rising rapidly. Now oil consumption averages about 175,000 b/d, compared to 125,000 b/d as an annual average in 1993-97 and almost 110,000 b/d in 1992.

Oil consumption in the period between the mid-1970s and 1985 rose by an average of 10% per annum. The growth rate has since declined as several power plants have switched from fuel oil to natural gas.

Fuel oil consumption has been falling. In the second half of the 1990s the rise in consumption was mainly for middle distillates and LPG.

Consumption of natural gas by industries, power plants and households is averaging about 4.2 BCM/year, compared to 2.45 BCM in 1999. Actual demand for natural gas is higher. But the output is limited due to a decline in oil production and the extraction of associated gas as a result of Libya's commitment to OPEC's oil price defence strategy (see OMT of this week).

In addition, about 1.5 BCM/year of gas are being reinjected into the oilfields, up from 1.26 BCM/year in 1999. Another 1 BCM/year are flared, down from 1.27 BCM/year in 1999.

In 2004 the domestic market will receive another 2 BCM/year of natural gas from the onshore Wafa field and an offshore structure - both being developed by Agip Gas. This gas, which will not be associated with oil, will be supplied from a new processing plant being built a Melitah through a 120-km pipeline being laid to Tripoli. The two fields will also be producing 8 BCM/year of gas for export to Italy (see Gas Market Trends 2).

NOC has added a new clause in its E&P offerings allowing foreign operators to explore for and produce natural gas. NOC will buy the gas at world prices, less a discount (see Gas Market Trends of this week).

Gas consumption will rise considerably in the coming years as this clear source of fuel will be used for power generation, industry and households. Most of the marketed gas is consumed by the power sector in the country and the petrochemical industry at Ras Lanuf.

A 160-km, 34-inch diameter gas pipeline with a capacity of 378 MCF/day was completed in 2001 to link Misurata with Marsa El Brega. Completion of this project, awarded in March 1999 by NOC subsidiary Sirte Oil Co. (SOC) to Zangas of Russia in a $170m contract, had been delayed since the original deadline of end-August 2000. But Zangas did not complete two compression stations between Misurata and Marsa El Brega. SOC in late 2002 excluded the Russian company from the latter part of the project and tendered it earlier this year. SOC is to award the contract in September.

The pipeline extends the 650-km Coastal Gas Pipeline network from Homs to Tripoli. A further expansion of the coastal gas network will involve a section to run from Tripoli to the western port city of Azzawiya. A 142-km gas pipeline between the Zueitina oilfield and Benghazi has been built by MAN of Germany under a $200m contract awarded in 1998 by SOC. It supplies new power plants.

MAN has built a 120-km, 34-inch gas pipeline from Marsa El Brega to Zueitina, under a $61m contract awarded in June 1997 by SOC, which has linked four new gas-fired power stations to the national gas grid.

The network from Marsa El Brega to Homs has a capacity of 420 MCF/day and supplies power, cement and fertiliser plants, the Misurata steel complex, and desalination plants. It was inaugurated in September 1989 and has since been operated by SOC. The section between Marsa El Brega and the industrial zone of Misurata was built by Tsvetmetpromeksport of the former Soviet Union.

LPG consumption this year is expected to reach 500,000 tons, compared with 350,000 tons in 1999, 315,000 tons in 1997 and about 300,000 tons in 1995. In 1990, LPG consumption was reported at about 205,000 tons. Surplus LPG and condensates are being exported.

The Electric Power Sector: Libya's power generating capacity is 7,000 MW. About $3,500m will be spent to raise the capacity to 12,000 MW before 2010.

While work on expanding this sector has been delayed for years, demand for peak load power in Libya has been growing at the rate of 7% per annum. Since 1999 planners have warned that there would be serious power shortages in the summer of 2003 due a major rise in consumption for air conditioning expected from early July.

An increase in the use of air conditioners since April 1999 has been due mainly to a suspension of UN sanctions and a rise in revenues thanks to high oil prices.

The General Electricity Corp. (Gecol), Libya's state-owned unit in charge of this sector, has been very slow in implementing capacity expansions and in building new plants. The latest of its major projects was a 640 MW gas-fired combined cycle plant at Azzawiya, 40 km west of Tripoli, consisting of four units contracted in 1998 and completed in 2000.

New Gecol projects will include the following:

- A 330 MW expansion of the Azzawiya plant. Gecol was expected to award this in early 2003 to Daewoo Engineering & Construction of South Korea.

- A conversion of the power plant at Azzawiya to combined cycle (CC). This is being done through the addition of gas turbines.

- A 600 MW gas-fired Western Mountain plant, for which the preferred EPC contract bidder is Enelpower (the engineering and construction unit of the Italian power utility Enel). This will have four 150 MW gas turbine. The site for this project, yet to be contracted, is 280 km south-west of Tripoli on the route of the gas export pipeline from Libya's Western Desert to Sicily. Enelpower has been competing for the project with BHEL of India and Alstom of France. Enelpower received a letter of intent for the project in late May 2001. Gecol has since selected Ansaldo Energia of Italy to supply the four gas turbines and generators. The project is to be financed directly from the state budget.

- A 1,400 MW Gulf Steam plant, about 20 km outside the coastal city of Sirte, for which the EPC contract bidders are two competing groups: Enelpower with local contractors; and a partnership of Alstom, Athens-based Joannou & Paraskevaides (J&P - Overseas), and Geneva-registered Archirodon Construction (Overseas). The plant is to have four 350 MW steam units. Award of the contract was originally due before end-July 2001. The project should be completed within 42 months from the date of the contract award. Mitsubishi Heavy Industries (MHI) is the nominated supplier for the boilers and turbines, the first of which to be commissioned within 32 months from the date of award. The other three turbines should be on stream at two-month intervals thereafter.

- A 300 MW expansion and CC conversion of the Benghazi North power plant. This, too, has been delayed. Gecol in 2002 broke off negotiations with Ansaldo, which was the preferred bidder for this $300m project, two years after the latter had won a letter of intent. The expansion will involve two 150 MW steam turbines, which will be the fifth and sixth units. The Kuwait-based Arab Fund for Economic and Social Development and the Jeddah-based Islamic Development Bank are providing a total of $125m to finance the project. Benghazi North now consists of three gas-fired units each having a capacity of 150 MW. The fourth 150 MW gas turbine has been installed by Alstom.

- A 600 MW Tripoli West Phase 1 plant. This $600m project was awarded in January 2002 to Technopromexport of Russia. Two 325 MW oil-fired turbines should be commissioned in 2006/07. The plant's Phase 2, to be tendered by Gecol, should add another 650 MW before 2010.

- A 750 MW gas-fired CC plant at Misurata's steel complex, for which Lahmeyer of Germany completed a feasibility study at the end of August 2000, is being tendered. This project is to cost about $350m.

- A 1,500-km, 400-kV transmission network will deliver power from the Gulf Stream plant. The $500m project, for which the low bidder is Kahromica of Egypt with the local Hidelco, involves supply and installation of a line from Sirte to Tripoli, from Benghazi to Ajdabia, and a branch line from Sirte to Hun.

One reason for these expansions is that many existing plants are poorly maintained. The Qadhafi regime often prefers to build new plants than to renovate old ones. Another reason is that Libya intends to sell electricity to Egypt and to Tunisia. A link between the power systems of Egypt and Libya was made in 1998 as part of a plan to connect Egypt's electricity grid with that of North Africa. A link with Tunisia was completed in 2001.

The Mediterranean Electric Ring, an EU-financed project, will connect all the power networks around the Mediterranean. This was officially launched on Feb. 8, 2001 in Nice. The project should be completed by 2005.

Apart from the power projects, the government has been spending heavily on water resources. Dong-Ah Construction of South Korea has had a contract worth about $3,575m to build Phase 1 of the $30,000m Great Man-Made River (GMR) project. The aim of this is to carry water from the underground wells of southern and central Libya to the northern coast for agricultural and other needs. The sources include a huge underground water reservoir in Kufra in the deep south.

Phase 2, a 500-km pipeline to link the Jaghboub well field with Tobruk, is under construction. Phase 3 will involve drilling and development of wellheads in Kufra and a 500-km pipeline linking them with the Phase 1 network. But Phase 1 now is only flowing at the rate of 300,000 CM/d, compared to an intended capacity of 2m CM/d.

Qadhafi's goal is to make Libya "green" by creating 180,000 hectares of farmland and achieving self-sufficiency in food. The GMR project, which started in 1985 and should be complete in this century, has been ridiculed by his critics as uncompetitive and impractical.