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WEEKLY NEWSLETTER
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Libya
Index
Workmen install a valve along pipeline in Ras al Unuf
Courtesy United States Information Agency
Figure 7. Petroleum Industry Infrastructure, 1987
Figure 8. Nonpetroleum Resources
Since the early 1960s, the petroleum industry has increasingly
dominated the whole economy, although in 1984 it provided direct
employment for fewer than 10,000 Libyans. The development of the
oil industry was remarkable, both in terms of its rapidity and its
proliferation. An exceptional combination of circumstances
contributed to the development of the petroleum sector. Like
Algerian oil, Libyan crude oil, while having a rather high wax
content, is lighter and easier to handle than crudes from most
other petroleum areas. It also has a low sulfur content, which
makes it easier on internal combustion engines and less of a
pollution contributant than other crudes. For this reason, Libyan
crudes had a receptive market in Europe from the start;
furthermore, Libya is one-third closer to European markets than the
oil ports of the eastern Mediterranean. When the Suez Canal was
closed by the June 1967 War, forcing tankers from Iran, Iraq, and
the Arabian Peninsula to go around the Cape of Good Hope, the
advantages of Libyan petroleum were enhanced. Moreover, the lay of
the land itself, which allows the output of the wells to be piped
directly and easily to dockside totally over Libya's territory,
assured steadiness of supply, which has not necessarily been the
case for eastern Mediterranean pipeline outlets. In addition,
Libya's petroleum development benefited from the technology and
experience acquired by the industry in other parts of the petroleum
world during the preceding fifty years. Thus, by 1977 Libya was the
seventh largest oil producer in the world. However, Libya's
position declined somewhat in the early 1980s as OPEC production
quotas were cut. By 1986 Libya was only the fifteenth largest
producer of crude oil.
For the petroleum industry, the military coup of 1969 did not
represent a rupture of continuity; it did, however, introduce a
shift in government attitudes toward the purpose and function of
the foreign operating companies in line with its general
nationalist-socialist political and socioeconomic orientation. It
is therefore useful to visualize Libya's petroleum development in
terms of two periods, dividing at September 1, 1969, with the
earlier period serving to prepare for the later.
Active exploration started in 1953 after oil was discovered in
neighboring Algeria. The first well was begun in 1956 in western
Fezzan, and the first oil was struck in 1957. Esso (subsequently
Exxon) made the first commercial strike in 1959, just as several
firms were planning to give up exploration. The first oil flowed by
pipeline from Esso's concession at Zaltan to its export facilities
at Marsa al Burayqah in 1961. The rush was on, with other companies
entering Libya and additional discoveries being made. The original
major strikes were in the Sirtica Basin, one of the world's largest
oil fields, southeast of the Gulf of Sidra; in 1987 this area was
still the source of the bulk of Libya's output. In 1969 a major
strike was made at Sarir, well to the southeast of the Sirtica
Basin fields, and minor fields were located in northwestern
Tripolitania. New deposits were found in the Ghadamis sedimentation
basin (400 kilometers southwest of Tripoli) in 1974 and in offshore
fields 30 kilometers northwest of Tripoli in 1977.
Since 1977 efforts to tap new deposits have concentrated on
Libya's offshore fields. The large Bouri field was due to be
brought on-stream by the NOC and AGIP (Azienda Generale Italiana
Petroli), a subsidiary of the Italian state oil company consortium,
in late 1987. Other offshore exploration ventures were launched
following the settlement of maritime boundary disputes with Tunisia
in 1982 and Malta in 1983. Libyan access to offshore deposits in
these formerly disputed areas was significant, because they may
contain as much as 7 billion barrels of oil.
Petroleum production in 1985 was still governed by the
Petroleum Law of 1955, which was amended in 1961, 1965, and 1971.
The government, through the Ministry of Petroleum, preferred to
grant sizable concessions to a number of different foreign
companies. To induce rapid exploitation of deposits, the typical
concession contract called for progressive nationalization of
Libyan operations run by foreign companies over a span of ten
years, with the Libyan government's share starting as one-fourth
and ending at three-fourths. The government extracted most of its
compensation in the form of product sharing. When early concessions
to several large companies by Esso, which was the first to export
Libyan crude in 1961, proved to be highly profitable, many
independent oil companies from noncommunist countries set up
similar operations in Libya. In 1969 about thrity-three companies
held concessions. Concessionary terms were somewhat tightened
during the 1970s, as the postrevolutionary government pursued a
more active policy of nationalization. The vehicle for this policy
was the revamped state NOC, which, as noted, was formed in 1970
from LIPETCO. In July 1970, NOC's jurisdiction was expanded by
legislation that nationalized the foreign-owned Esso, Shell, and
Ente Nazionale Idrocarbuno (ENI) marketing subsidiaries, and a
small local company, Petro Libya, and transferred their operations
to NOC. These operations included managing companies in the
importing, distributing, and selling of refined petroleum products
at subsidized prices in Libya. In 1971 the companies were merged
into a single countrywide marketing enterprise called the Brega
Company, which also marketed oil and gas abroad for the government.
The new government's nationalization campaign commenced in
December 1971, when it nationalized the British Petroleum share of
the British Petroleum-Bunker Hunt Sarir field in retaliation for
the British government's failure to intervene to prevent Iran from
taking possession of three small islands in the Persian Gulf
belonging to the United Arab Emirates. It was not until late 1974
that a compensation agreement was reached between British Petroleum
and the Libyan government over the settlement of these nationalized
assets. In December 1972, Libya moved against British Petroleum's
former partner Bunker Hunt and demanded a 50-percent participation
in its operations. When Bunker Hunt refused, its assets were
nationalized in June 1973 and turned over to one of NOC's
subsidiaries, as had been done earlier with British Petroleum's
assets.
In late 1972, a 50-percent participation had been agreed upon
with the Italian joint company, ENI-AGIP, and in early 1973 talks
began with the Occidental Petroleum Corporation and with the Oasis
group. Occidental, accounting for about 15 percent of total
production, was one of the major independent producers. In July
1973, it agreed to NOC's purchase of 51 percent of its assets. The
Oasis group, another major producer, was one-third owned by the
Continental Oil Company, one-third by Marathon Petroleum, and one-
sixth each by Amerada Petroleum Company and Shell. The Oasis group
agreed to Libyan 51-percent participation in August 1973. On
September 1, 1973, Libya unilaterally announced that it was taking
over 51 percent of the remaining oil companies, except for a few
small operators.
Several foreign oil companies balked at the Libyan proposal but
soon found that the government's policy was firm: agree to Libyan
participation or face nationalization. Shell refused to accept
Libyan participation in its share of the Oasis group, and its
operations were nationalized in March 1974. A month earlier, three
other reluctant oil companies had been nationalized: Texaco, the
California Asiatic Company, and the Libyan-American Oil Company.
They finally received compensation for their assets in 1977.
Political events of the 1980s convinced many American-owned
companies of the advisability of selling off their Libyan
operations. In 1981 Exxon withdrew from Libya, pulling out its
long-standing subsidiary operations. Mobil followed suit in 1982,
when it withdrew from its operations in the Ras al Unuf system.
These withdrawals gave NOC an even greater share in the overall oil
industry. Another round of advancing nationalization was made
possible in 1986, when United States President Ronald Reagan
announced on January 7 his intention to require American companies
to divest from their operations in Libya. It was unclear at that
time, however, whether the five companies involved would sell their
shares to NOC (probably at a substantial loss), or merely transfer
them to European subsidiaries not affected by the president's
sanctions. According to the latest estimates available in early
1987, NOC's share of the total equity in Libyan petroleum
operations stood at 70 percent, with two operating subsidiaries and
at least a 50-percent share in each major private concession.
Although NOC nominally had been under control of the Ministry
of Petroleum, foreign observers were uncertain what real control
the ministry had over the NOC. The ministry's dissolution in March
1986 produced little comment, which seemed to indicate that NOC was
the principal instrument of government policy in the oil sector and
controlled about two-thirds of Libya's total oil production.
Since 1974 no new concessions have been granted, although the
Libyan government has negotiated production-sharing agreements with
existing concession holders to induce them to search for new
deposits, particularly in the offshore region bordering Tunisia
where the large Bouri field is located. These agreements have
called for NOC to receive 81 percent of production if the discovery
is offshore and 85 percent if it is onshore.
Libyan price policy has largely been settled in meetings of
OPEC, which it joined in 1962. Both the prerevolutionary and
postrevolutionary governments have remained committed to OPEC as an
instrument for maximizing their total oil revenues. Petroleum
production (almost all of which was exported) declined during the
first half of the 1970s, as a result of both the OPEC and Libyan
policy of cutting production to influence price. During the late
1970s, production rose slightly, only to fall again in the 1980s
when OPEC reduced its members' production quotas in an attempt to
halt the oil price slide. In March 1983, Libya accepted its OPEC
quota of 1.1 million barrels per day
(bpd--see Glossary). This
figure was revised downward again in November 1984, when it was set
at 990,000 bpd. Libyan oil production in 1986 averaged 1,137
thousand bpd, having regained the same production it had in 1981.
Generally, Libya has adhered to its OPEC quota.
In 1986 Libyan oil fields were served by a complicated network
of oil pipelines leading to the five principal export terminals at
Marsa al Burayqah, As Sidra, Ras al Unuf, Marsa al Hariqah, and Az
Zuwaytinah
(see
fig. 7). The Sidra terminal exported the largest
volume of oil, about 30 percent of the total in 1981. A future
sixth terminal was planned at Zuwarah in western Libya. Pipelines
to these terminals served more than one company, thus mixing
different oil blends that were standardized for export. The share
that an individual company received from exports was determined by
the amount and quality or the oil that entered the common pipeline.
The share of the oil belonging to NOC was either sold directly on
the open market or sold back to its producing partner. Libyan
refining capacity increased dramatically in 1985, when the export
refinery at Ras al Unuf came on stream with a 220,000-bpd capacity.
Other refineries existed at Tobruk (20, 000 bpd), Marsa al Burayqah
(11,000 bpd), and Az Zawiyah (116,000 bpd), giving Libya an overall
refining capacity in 1985 of 367,000 bdp.
Production of natural gas in Libya received a major boost in
1971, when a law was passed requiring the oil companies to store
and liquify the natural gas condensate from their wells, rather
than burning it off as many had previously done. However, natural
gas production has lagged far behind oil because the high costs of
transport and liquefaction have made it a less attractive
alternative. A large liquefaction plant was built at Marsa al
Burayqah in 1968, but its export performance has been spotty. About
70 percent of Libya's natural gas production is consumed
domestically. Production stood at 12.35 billion cubic meters in
1984, down from 20.38 billion cubic meters in 1980. Total reserves
of natural gas were estimated at 600 billion cubic meters in 1985.
According to information available in 1987, Libya's
commercially usable mineral resources--apart from its hydrocarbons-
-were limited to a large iron-ore deposit in the Wadi ash Shati
near Sabha in Fezzan
(see
fig. 8), and scattered, deposits of
gypsum, limestone, cement rock, salt, and building stone. There
also were small, widely scattered and currently noncommercial
deposits of phosphate rock, manganese, barite-celestite, sodium
carbonate, sulfur, and alum. Although much of the country had been
photographed by the petroleum companies and large portions of it
had been mapped by the Italians, by British and American military
personnel, and by the United States Geological Survey (from 1954 to
1962) in search of water and minerals, the country is so large that
in early 1987 much of it still had not been mapped at scales
suitable for definitive mineral inventory.
The Wadi ash Shati iron-ore deposit is apparently one of the
largest in the world. Suitable in considerable part for strip
mining, it outcrops in or underlies roughly eighty square
kilometers of the valley. According to information in the mid-
1980s, none of it was high-grade ore. Preliminary estimates suggest
that the amount of 30 to 40 percent iron-content ore in the
deposits totals anywhere between 700 million and 2 billion tons.
Because of the distances and technical problems involved,
profitable exploitation of the deposits would depend on the
construction of a proposed railroad to the coast. Development of
the deposits would allow Libya self-sufficiency in iron and steel,
although probably at costs appreciably above those available on an
import basis. In 1974 a state-owned company, the General Iron and
Steel Corporation, was formed to exploit the deposits. The
government hoped that the planned iron and steel manufacturing
plant at Misratah, scheduled for completion in 1986, eventually
would be able to exploit the Wadi ash Shati deposits. But the
commercial viability of using these deposits was not assumed, since
initial plans called for the Misratah works to be fed with imported
iron-ore pellets.
Other scattered iron ore deposits in northwestern Tripolitania
and northern Fezzan were apparently insufficient to be commercially
exploitable under current conditions. Manganese was known to occur
in northwestern Tripolitania and, in combination with the iron-ore
deposits, at several locations in the Wadi ash Shati. Known
deposits, however, were not considered commercially exploitable.
Salt flats, formed by evaporation at lagoonal deposits near the
coast and in closed depressions in the desert interior, are widely
scattered through the northern part of the country. In some cases,
especially along the Gulf of Sidra, they cover large areas. In the
1980s, about 11,000 tons of salt were produced annually. Evidences
of sulfur have been reported at scattered points in the salt flats
of the Sirtica Basin and in various parts of Fezzan; sulfur occurs
in pure form in Fezzan and is associated with sulfur springs in the
Sirtica Basin.
Sodium carbonate (trona) is formed as a crust at the edges and
bottoms of a number of dry lakes in Fezzan. Traditionally, about
100 metric tons a year were harvested and sent to market at Sabha.
Because sodium carbonate is used in petroleum refining, as well as
traditionally in soapmaking and water refining, production may be
increased as part of the government's development effort in Fezzan.
Because of the government's interest in social welfare and its
financial ability to support it, construction is bound to be a
major area of future economic development. Except for wood, the raw
materials needed for construction--stone, gravel, clay, limestone,
gypsum, and cheap fuel--are found in abundant quantities and
suitable commercial qualities adjacent to the major population and
production centers in both northern Tripolitania and Cyrenaica. In
1986 plans were announced for a new gypsum mine with a planned
output of 200,000 to 300,000 tons a year. Several thousand tons of
gypsum are mined annually and indicated reserves of gypsum total
about 200 million tons.
Data as of 1987
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