LIBYA - The LNG Business.

Libya in 1971 became the second country in the world to export LNG, which is methane made liquid in order to be transported from the source to a distant market, and its term clients were Snam of Italy and Enagas of Spain.

(The first exporter of LNG in the world was Algeria, whose initial deliveries to England and France took place in 1964).

However, the LNG business has proved to be far less profitable to Libya than the production and export of oil, petroleum products or gas liquids. This is because the capacity of the LNG plant has been limited in scale, and the Libyans have been less keen on the liquefaction business.

Libya's LNG plant, at Marsa El Brega, was built in the late 1960s by Esso (Exxon) with a capacity of about 3.5 BCM/year. But the plant produced high-calorie LNG, no longer acceptable to importers. In view of this, Libyan LNG exports in recent years were limited to 1.2 BCM per annum with sales going to Enagas. Libyan LNG deliveries to Enagas in 2000 fell to about 800 MCM and it seems the volume this year would be about the same. The LNG is shipped to a terminal in Barcelona.

The receiving and degasification terminal of La Spezia in Italy, originally built to take Libyan LNG, has been modified for the normal low-calorie grade. This has compelled NOC to seek a modification of its liquefaction system. But work on refurbishing and modifying the plant to produce the normal, low-calorie grade of LNG has been delayed since 1992 because of a limited UN embargo.

It is not clear when the plant would be ready, with the UN having suspended sanctions against Libya since April 1999. Now Tripoli can easily import the necessary equipment.

The consultant for this project has been Technip. The contract for refurbishing and modifying the plant was in 1993 valued at $50m. Technip has done the basic engineering work on the new system.

The owner and operator of the plant is Sirte Oil Co., an upstream subsidiary of NOC which is a major producer of natural gas. In addition to LNG, the plant has units with capacity to produce up to 6 MCM/day of natural gas liquids (NGLs) and 20,000 b/d of naphtha. When a modified version of the plant becomes ready to operate at its capacity of 3.5 BCM/year, or more, over 55% of the LNG output will be exported to Spain. The rest should go to Turkey and Italy.

Under a contract signed in 1990 and valid from 1992 to 2008 (a renewal of its 1971-91 contract), Enagas has been expected to lift 2 BCM/year. Enagas has offered to lift additional quantities during the winter. But it would only take them on spot basis, while NOC has insisted on a term contract based on the ToP formula.

Snam, the first to import LNG from Libya in 1971 under a 20-year contract, has declined to sign a new agreement because the Libyan price formula is not acceptable to the Italian utility. Instead, Snam has said it would only lift the LNG after it has been modified and on spot basis during the winter. (Snam's original contract called for CIF deliveries of 1.8m t/y. The company suspended liftings in August 1980, however, following disagreement over a new fob price demanded by Brega International, another NOC subsidiary marketing the LNG on behalf of Sirte Oil Co. which was dissolved in 1992. An annual contract was signed in February 1984 under which Snam was committed to lift 750 MCM/year as from April 1984, and the fob price was $3.45/m BTU, though actual liftings were much lower. Snam again suspended all liftings in 1986. It resumed buying LNG on spot basis in October 1988. Its spot purchases in 1989 amounted to about 300 MCM).

Turkey has been committed to lift 1.5 BCM/year from Marsa El Brega, under a 25-year contract signed in August 1988. But no deliveries have been made as Sirte Oil has not modified its plant. Turkey remains bound by contract to take the LNG once the modification at Marsa El Brega has been completed.