Libya. Tripoli, April 16 (Bloomberg) -- Deep within the Sahara
Desert, about 750 miles southwest of the Libyan capital of
Tripoli, Lasmo Plc is drilling for oil on the ''Elephant,'' a
field so large it could supply the whole of the U.S. with crude
for a month.
The field, named for its size when discovered some two
years ago, is a potent reminder of how much oil lies beneath
Libya -- and how valuable that crude could be to Western
exploration companies such as Lasmo, based in London.
It also points to a potential headache for the world's oil-
producing nations: How to square promises to cut production and
shore up prices with Libya's aggressive new campaign to court
foreign investment to boost production in its oil industry.
''You can't have one policy that restricts output and
another that calls for opening up new production,'' said Leo
Drollas, a leading oil price forecaster, at London's Centre for
Global Energy Studies. ''Something has got to give.''
The nation seeks money to help expand oil production, which
at 1.35 million barrels a day is 13 percent below capacity and
half its 1970 peak. With costs about half those in the North
Sea, the potential production increase is substantial in Libya,
a country that earlier this year was pumping about 30,000
barrels a day more than its Organization of Petroleum Exporting
Countries quota.
Big Pitch
Libya is stepping up its efforts as the United Nations
prepares to lift sanctions imposed against the north African
nation stemming from its alleged role in the bombing of Pan Am
flight 103 over Lockerbie, Scotland, in 1988. On April 5, Libya
handed over to an international court two men accused of the
bombing, which killed 270 people.
With the sanctions suspended, Oil Minister Abdalla El-Badri
will meet Western oil executives next week in Geneva and unveil
changes to Libya's 1965 petroleum laws and pitch exploration
projects. U.S. sanctions that predate Lockerbie will remain in
place, preventing oil giants such as Conoco Inc., Mobil Corp.
and others from moving in.
It's a big shift in Libya's stance toward the West since
the early 1980s, when head of state Col. Muammar Qaddafi praised
terrorist attacks in Rome, Berlin and Vienna.
Yet moves by Libya and a few of its OPEC colleagues to
court foreign companies suggest a widening division over the
group's oil strategy to boost revenue, which fell 36 percent
last year to $103 billion.
OPEC, of which Libya is a member, agreed to cut oil output
no fewer than three times in the past year. After months of
failure, the 11-nation group has finally succeeded in shoring up
prices after oil tumbled to a 12-year low in December. Since
then, Brent crude has soared 58 percent to more than $15 a
barrel in London.
While observers believe OPEC will this time make most of
its cuts, plans to build new capacity suggest agreements to
limit output may become harder in the future. Venezuela, Iran,
Kuwait and now Libya -- all of which kicked out Western oil
companies in the 1970s -- are investing billions to expand,
suggesting an era of abundant supply rather than rising prices.
''Libya, Kuwait and Venezuela will strengthen the trend of
low medium-term oil prices,'' said Mohammed Abduljabbar, an
industry consultant with Petroleum Finance Co. in Muscat, Oman.
''They will cause more supply of oil to come onto the market.''
Pressure
Oil producers are under considerable pressure to earn more
for their oil. OPEC revenue is at its lowest since the first oil
shock in 1973, and the group's market share of world oil supply
has narrowed to 42 percent from 50 percent in the early 1970s.
The price of oil, which touched $40 a barrel in 1980, averaged
just $13.34 a barrel last year.
Today, Iran is seeking $8 billion of investment in new
fields and Kuwait is considering allowing Western oil companies
to work its fields. Even Saudi Arabia, the world's biggest
producer, has listened to Western proposals.
Yet seven years of UN sanctions have left Libya perhaps as
the most desperate for cash.
A quarter of its population is unemployed, and the economy
shrank 0.5 percent in 1997, the latest year for which data is
available. With about 95 percent of its hard currency coming
from oil, falling commodity prices forced the nation to devalue
its currency 18 percent in December.
Ideal Location
Eni SpA of Italy, OMV AG of Austria and Repsol SA of Spain
have made major oil discoveries and could help expand Libya's
output. The companies are attracted by the nation's location on
the African coast of the Mediterranean Sea, close to big energy
markets of Western Europe. Unlike in landlocked Kazakhstan,
Libyan oil needs no major pipelines to reach deep-water ports.
Funds invested in new oil fields today won't mean higher
output for six months to a year, at least. Drollas, the CGES
forecaster, estimates output won't reach 2 million barrels a day
until at least 2005. And some of the new fields tapped will make
up for declining output at aging fields.
Yet the nation's expansion binge begs the question just how
committed Libya is to OPEC restraint.
For the record, OPEC ministers including Libya have nothing
but praise for the latest agreement to cut output. But to date,
the group only has met three-quarters of its committed cuts,
with Libya making about 79 percent.
A vocal few ministers believe OPEC should shed its 1970s
reputation for pushing prices higher and seek moderate prices,
perhaps even lower than the rough $18 to $22 a barrel prevailing
during the past decade. The reasoning is lower prices assure
more market share for countries that can produce most cheaply --
and all those are within OPEC.
''It is important for us to monitor the market to ensure
that prices don't go above a certain level that would encourage
more supply to come into the market,'' Venezuelan Oil Minister
Ali Rodriguez said in Vienna last month.
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