Fierce competition in scramble for Libya’s black gold

Fierce competition in scramble for Libya’s black gold
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First Published: Mon, Mar 05 2007. 11 16 PM IST
Updated: Mon, Mar 05 2007. 11 16 PM IST
Tripoli: After 20 years of isolation, Libya has become the destination of choice for hungry oil companies ready to cut any kind of deal to get a piece of the North African state’s oil riches. “It’s a race for our black gold,” National Oil Co. president, Shukri Ghanem, said. “We’re organizing it like the Olympic Games and may the best one win.”
Ghanem, a former prime minister and widely considered a leader of the “reformists” in the country, will soon be wrapping up the third round of bidding on concessions. In two years, more than 40 companies worldwide will have received permits for five years of exploration, extendable to another 20-25 years exploitation in case of a discovery. “The United States, Britain, Italy, France Russia, China, Taiwan, India, Algeria, Indonesia, Spain and even Canada,” he said, listing the nations like prizes in a contest.
With each subsequent round of concessions, companies from around the world have been undercutting each other’s bids to the barest limits of profitability. With the end of the UN sanctions after Libyan leader Moamer Kadhafi’s decision in 2003 to abandon weapons of mass destruction programmes, oil exploration has picked up from its hiatus at a frenetic pace.
OPEC (Organization of Petroleum Exporting Countries) member Libya is Africa’s second-largest oil producer with 1.6 million barrels of oil per day (bpd). Its reserves are estimated at 42 billion barrels of high quality crude that could rise to Kuwait-like levels of 100 billion with new explorations.
“Libya is one of those rare countries that have huge exploration zones of practically virgin territory, but some companies are rushing into them on terms that are only barely economically feasible,” said Philippe Malzac, head of French oil company Total.
In 2005, for the first time in four decades, foreign oil companies won concessions to explore with a symbolically strong showing by US firms such as Chevron-Texaco and Occidental Petroleum.
In the second round of bidding, however, Asian companies were at the vanguard, taking 10 of the 19 licences up for grabs, with French Total also taking a major block itself.
More important for Ghanem than just the origins of these companies, however, is the consistent improvement of the production-sharing agreements for Libya with each round of bidding. “In the third round, some countries accepted only 7% for themselves, leaving 93% for us, which is very good for us,” said Ghanem. “It must also be good for the companies since they submitted the offer.”
While the agreements began with an average share of 25% for the companies, in the third round Chinese Petroleum offered to take only 7.8%, while Russia’s Gazprom and Tatneft dropped to 10%.
“Taking into account the risks and the rise in cost of investments, the companies submitting such offers are not functioning solely on economic criteria—it’s disturbing,” said an oil man who preferred to remain anonymous. For him and many other representatives of the western companies, these kinds of deals smack of “dumping” on the part of the energy-hungry Chinese, Indians and Russians.
American giant Exxon is sitting pretty with a massive offshore concession of 10,000 sq. km in the Sirte basin, along 160 km of coastline, which it obtained without competition.
“We are very happy with this concession,” said Philippe Gosse, head of Libyan operations. “Exxon-Mobil has a long history of successes in Libya.”
Oil makes up 95% of Libya’s exports—with 40% of it going straight to Italy—and 70% of its GDP (gross domestic product). The nation is hoping to return to its pre-embargo production rate of three million bpd. Experts are doubtful, however, that given the current state of Libya’s oil infrastructure, even the first stage target of two million bpd by 2010 is reachable.
“Decrepit infrastructure and a massive bureaucracy are not going to help in achieving this objective,” said one. Nor will foreign oil firms’ negotiating positions get any easier, with Kadhafi warning in a speech on Thursday that western oil firms were after more than was currently on offer.
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First Published: Mon, Mar 05 2007. 11 16 PM IST
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