Bloomberg: Libya's Handover of Suspects May Lead to an Oil Boom
Tripoli, April 5 (Bloomberg) -- European oil companies are
preparing for an investment boom in Libya after the nation turned
over two suspects in the 1988 Pan Am bombing, clearing the way
for the United Nations to lift sanctions.
Eni SpA of Italy, already Libya's biggest foreign oil
producer, and Lasmo Plc of Britain are among the companies
planning to expand investments. Their activities will further
strain sanctions the U.S. imposed independently on Libya two
years before the bombing, in response to terrorist incidents that
forced U.S. oil companies to leave the nation.
Libya has lost $24 billion in potential oil revenues since
the UN sanctions were imposed in 1992, and is desperate for
investment. Oil income, accounting for 95 percent of the nation's
hard-currency earnings, fell more than one-third last year as
crude prices touched 12-year lows. That forced Libya to devalue
its currency by 18 percent in December.
''Oil companies will now feel more comfortable in talking
with the Libyan government about potential projects,'' said
Mohammed Abduljabbar, an industry consultant with Petroleum
Finance Co. in Washington. ''It will allow Libya to rehabilitate
its oil production.''
Lifting UN sanctions means international flights to Tripoli
could resume and the nation could buy supplies to refurbish oil-
export equipment. While the European Union has no ban on oil
drilling activity in Libya, the six-hour drive from Tunisia to
Tripoli is a strain that wards off many Western investors.
Welcoming Gestures
Already, Libya has taken steps to welcome back oil companies
that left through the 1980s as a combination of UN sanctions and
threats against foreigners by the Libyan leader, Colonel Muammar
al Qaddafi, made the nation a no-go area for Westerners.
Later this month at a conference in Geneva, Libyan Oil
Minister Abdalla El-Badri will announce amendments to the
nation's hydrocarbon law -- which dates back to 1955 -- and
unveil the first major round of bidding for oil exploration
rights in four years.
El-Badri said last month in Vienna he already has held talks
with U.S. oil companies about returning.
''As far as Libya is concerned, they are welcome back,'' El-
Badri said. ''We already have been in contact with some of our
previous (U.S.) partners. We have been contacted by the American
oil companies and we want them to come back to Libya.''
With proven oil reserves of about 30 billion barrels --
almost as much as has been found in the North Sea -- Libya is a
prize for the world's oil industry. Lasmo of London pumps Libyan
oil for $5 or so per barrel, about half the cost in the U.K.
Cheaper Still
The two-year oil price rout has made Libya's cheap oil even
more attractive. Benchmark Brent crude oil prices, currently
$14.72 a barrel, are little more than half their 1997 peak price
of almost $25. Libyan projects, however, are profitable even if
prices slip well below $10 a barrel.
''We're looking for more exploration acreage in Libya,''
said Roy Beadle, a spokesman for Lasmo, which is Britain's second-
biggest oil exploration company. ''Our guys have no problem
working there even with the sanctions.''
Eni, which is based in Rome, produces about 16 percent of
Libya's oil and found the nation's biggest offshore field. The
company is seeking customers to back a $3.5 billion investment in
new gas production from the Wafa field on Libya's Mediterranean
coast and a pipeline under the sea to Italy.
Others, such as Total SA of France, OMV AG of Austria,
Repsol SA of Spain and Lundin Oil AB of Sweden, also are active
in exploring for oil in Libya.
''Doing business in Libya would be easier'' without
sanctions, said Terance Taylor, assistant director of the
International Institute for Strategic Studies, a London-based
policy adviser. ''Financing for new projects will be easier to
obtain.''
U.S. Pullout
Still, the U.S. companies that withdrew in the early 1980s
after sanctions tightened probably won't be back soon. In 1986,
then U.S. President Ronald Reagan told Occidental Petroleum Corp.
and a consortium including Marathon Oil Co., Conoco Inc. and
Amerada Hess Corp. to pull out after Libyans were linked to the
bombing of an Egyptian airliner and a German nightclub.
Exxon Corp. and Mobil Corp. withdrew in 1982, a year after a
U.S. trade embargo began. And in 1996, the U.S. Congress
tightened sanctions against Iran and Libya, accusing both of
funding terrorism.
If U.S. sanctions did lift, Conoco, Hess and Marathon could
have a head start on their rivals, since about $2 billion of
assets -- including seven major oil fields -- has been held in
trust by the Libyan government until sanctions are removed. The
group was part of Oasis Oil Corp.
Since 1986, Conoco's share of production from Oasis --about
300 million barrels of oil valued at about $5 billion-- has gone
to the Libyan government, said Carlton Adams, a Conoco spokesman.
''We hope to return and resume our operations there once all
the sanctions are lifted,'' Adams said.
Hess and Marathon didn't comment on the issue.
While the U.S. has acknowledged Libya hasn't sponsored
terrorism in at least three years, Jane's Defence Weekly last
year reported intelligence officials are concerned that Libya's
$25 billion Great Man Made River project could be used to support
a chemical-weapons program or to speed troops to Libya's borders.
Libya maintains the irrigation project is to develop agriculture
near its northern cities.
Even so, almost nobody expects the U.S. to lift sanctions.
''UN sanctions will go, but the U.S. sanctions will be
retained,'' said George Joffe, a scholar on the region at the
Royal Institute of International Affairs, a London policy
consultancy. |
