Libya National Oil Company: A Short Analysis By Rafael Broch
1/05/2007

Twenty-five years of sanctions have left Libya's oil reserves dramatically under-explored, but now it’s time for business.

December 2003 saw President Qadhafi abandon his WMD programme, and five months later, the last of the sanctions were lifted by the US. These developments made possible the substantial restructuring of Libya’s oil sector, which itself suggests important changes for global trade relations.

In March 2006, the state-owned National Oil Company (NOC) underwent a leadership change that was largely designed to consolidate power under its new Chairman, Shukri Muhammad Ghanem. Ghanem hopes to engineer a combination of privatisation of the petroleum sector with rapid growth in production capacity, from 1.7 million barrels/day presently, to 3 million barrels/day by 2015. That is approximately as much as Venezuela's daily production, but still less than Libya’s output in Qadhafi’s revolutionary years in the early 1970’s.

Now, with fresh international rapprochement, proven reserves of 40 billion barrels and only 30% of Libya's territory explored for oil, conditions are ripe for a rush of foreign investment. And other factors make Libya's success likely- the favourable grade of its crude oil, the volatility of Nigerian and Iranian oil markets, and Libya's proximity to European refineries.

Until March, Ghanem was Libya's Prime Minister, having been promoted from Minister for Trade and Economy by Seif Al-Islam Qadhafi, the President's second eldest son and his heir apparent. Both men are economic liberals and proponents of privatisation.

The regime wishes to speed up the foreign bidding process for exploration licenses, and three specific developments suggest that Ghanem now enjoys an uncontested leadership in this objective. Firstly, with Ghanem's appointment, the post of Minister for Oil was eliminated, removing a traditional source of competitive authority over the NOC. Further, in June, he reportedly sent an unprecedented letter to cabinet members declaring his sole responsibility for the sector and all the NOC's international negotiations. And a third factor suggesting Ghanem’s authority is his recall of partially-autonomous foreign procurement companies that were established during the sanctions-era, including London-based Umm al-Jawaby. All these factors describe changes that would certainly have required President Qadhafi's blessing.

Other relevant officials include the NOC's Vice-President Faraj Mohamed Saeed, a career oilman and a Ghanem loyalist, and Libya's Prime Minister Baghdadi Mahmudi, who chairs the Council of Oil and Gas, but whose role is merely consultative. One possible threat to Ghanem's control of the NOC comes from his conservative critics in the General People's Congress, who dominate Libya's relatively ineffective parliamentary body. More plausibly Ghanem may eventually lose his role as a result of Qadhafi's diligence in thwarting potential political opposition. No procedural machinations obstruct Qadhafi’s executive decisions, so leadership of the NOC will continue to be irregular and whimsical. But insofar as the privatisation process proceeds and real growth continues at around 7% as projected, Ghanem's reformist leadership is probably secure.

The NOC hopes to capitalize on high oil prices by exporting its vast reserves- the largest in Africa. In the latest round of bids for exploration licenses, 50 companies bid for 41 concession blocks, many of which are situated in the rich Sirte basin. Also for sale are oil services companies which Ghanem hopes to offload so to concentrate the NOC on Petroleum production, and joint venture agreements to expand the capacity of Libya's two largest refineries at Azzawiya and Ras Lanuf. Bidding for those $650 million agreements began in July.

But the greatest foreign investment so far has been American. In December 2005, ConocoPhillips, Marathon Oil (both Texan) and Amerada Hess (New York) signed a deal with the NOC worth $1.3 billion that will see the co-venturists return to production interests in Libya's Waha concessions that they were forced to leave in 1986 during the US economic freeze. The US companies will own a combined 40.84% of the concessions.

The Europeans may also arrive, with German Foreign Minister Steinmeier leading a high-ranking delegation of energy company executives to Tripoli last November. Germany has just taken on the EU’s rotating presidency and is the largest consumer of Libyan crude, after Italy.

There is presently a productive combination of foreign thirst for lucrative oil contracts, with Libya’s strive for economic re-emergence. The Western concerns over Libya’s strict sentencing of five Bulgarian nurses (suspected of infecting Libyan children with HIV) illustrates the gap between Libyan and European attitudes towards justice. But those concerns are not a realistic obstacle to big business. In this context, Ghanem’s NOC, and therefore Libya, is emerging as a key economic intermediary between Europe, Africa, and the US.

raf@london.com

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