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LIBYA - Energy Base.

Economic conditions in Libya improved on April 5, 1999, as the UN suspended sanctions imposed since April 1992. A rise in crude oil prices had begun from late March as OPEC and four non-OPEC states ratified an agreement to keep oil supplies restrained for a year until end-March 2000.

Col. Qadhafi's regime had all the reasons to cement Libya's international business links immediately, chiefly to head off any future attempt to isolate the country again in the event of a bad turn in the trial of the two suspects in the Lockerbie bombing (see OMT). One priority was to attract international companies quickly to invest in infrastructure projects worth over $14 bn.

Another was to highlight six business opportunities: (1) The flag carrier, Libyan Arab Airlines, urgently needs to purchase up to 20 new aircraft to resume full operations, having been grounded by the UN sanctions since April 1992; (2) The oil refining sector requires quick rehabilitation (see DT No. 2). Petroleum products have been hit hard by the effects of the UN and US sanctions on the supply of spare parts for the refineries, with the US sanctions having started since the late 1970s. (3) The communications sector urgently needs modernisation and big expansion. There is no cellular infrastructure in Libya. The fixed network only has seven lines per 100 inhabitants. (4) The banking sector needs to expand and diversify its activities. New projects in oil and gas, the power sector and infrastructure will require commercial financing on a scale yet to be developed in Libya. The market requires a number of financial institutions including a branch of Arab Banking Corp. (ABC) in which Libya has a major stake. (5) There will be plently of construction jobs as the government intends to have free trade zones built in all the cities. (6) The number of Libyan students seeking vocational training and education abroad will increase considerably through the rest of 1999 and in 2000, having declined sharply after the UN sanctions were imposed in April 1992.

In the seven years before April 5, 1999, Libya was in a state of limbo. There was a ban on air traffic and on the sale of military and aviation equipment, a freeze on Libya's assets abroad and a clampdown on the transfer of funds into Libya, a ban on selling a range of oil-related equipment (mainly for the downstream sector), and a cut in the size of diplomatic representation. In addition, there was (and still is) the US embargo on trade and Libyan oil, with the first American sanctions imposed in the late 1970s, reinforced in August 1996 with a ban on foreign companies investing more than $40m/year in Libya's hydrocarbon sector.

The energy market in Libya is small relative to the size of its oil and gas exports. Local energy consumption in 1999 is to reach more than 12 million tons of oil equivalent, compared to 11.4m toe in 1998, 10.9m toe in 1997, less than 10.5m toe in 1995 and 9.2m toe in 1990. The state-owned National Oil Co. (NOC) says energy consumption in 2000 will exceed 12.5m toe.

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 150,000 b/d, compared to 125,000 b/d as an annual average in 1993-97 and less than 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 considerably 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 2.45 BCM/year in 1999. This is 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. Libya's output now is averaging about 1.3m b/d, with its OPEC quota limited to 1.227m b/d.

In addition, about 1.26 BCM/year of gas are being reinjected into the oilfields. Another 1.27 BCM/year are flared.

Gas consumption could rise quickly in the coming years as this clear source of fuel is used increasingly for power generation. Four new power plants based on gas have been built. Most of the marketed gas is consumed by the petrochemical industry at Ras Lanuf and by the power sector.

In February 1999, NOC subsidiary Sirte Oil Co. awarded Zangas of Russia a $170m contract to build a 160-km, 34-inch diameter gas pipeline with a capacity of 378 MCF/day. This will extend the 650-km Coastal Gas Pipeline network from Khoms to Tripoli and should be completed before end-August 2000. A further expansion of the coastal gas network will involve a section to run from Tripoli to the western port city of Azzawiya.

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

In 1998, Sirte Oil Co. awarded a contract for a 150-km gas pipeline to be built from the Zueitina oilfield to Benghazi. The project, likely to cost about $160-180m, is to supply new power plants.

Four new gas-fired power stations were built in recent years at Benghazi, Zueitina, Khoms and Tripoli. In June 1997, MAN of Germany won a $61m contract to build a 120 km, 34-inch gas pipeline from Marsa El Brega to Zueitina for the Sirte Oil Co. The pipeline is to connect the four new plants to the national gas grid.

LPG consumption this year is expected to reach about 350,000 tons, up from 315,000 tons in 1997 and about 300,000 tons in 1995. It could rise to 380,000 tons in 2000. In 1990, LPG consumption was reported at about 205,000 tons.

Exports of liquefied natural gas (LNG), LPG and other gas liquids (NGLs) involve about 1.6 BCM/year. The volume of Libyan gas exports will rise considerably in the next decade. Exports would be expected to reach almost 10 BCM/year by 2004.
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Publication:APS Review Downstream Trends
Geographic Code:6LIBY
Date:Jul 5, 1999
Previous Article:KUWAIT - KNPC - Hamad Abdel Muhsin Al Mutair.
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