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Large reserves, underexplored resources
Libya holds 3.4% of the world's proved oil reserves—the largest in Africa.
In addition, Libya's oil sector enjoys two important advantages. First, the country is located on the opposite side of the European market. Despite genuine efforts to diversify Europe's energy mix, most European countries remain heavily dependent on imported oil. Geographical proximity means that Libyan oil is easy and cheap to import.
Second, unlike a large proportion of oil from the Persian Gulf region and elsewhere, Libya produces one of the highest-quality and low-sulfur oil—light and sweet crude. Generally, this crude is the easiest to process and can be run by relatively "simple" refineries that may not be able to handle heavier or sourer substitutes.
A loss of light, sweet crude volumes is more difficult to deal with than a loss of heavier and sourer ones. This is not only because the refineries that run light, sweet grades have limited feedstock flexibility but also because most of the spare crude production capacity tends to be at the heavy, sour end of the barrel.
In short, Libya's importance to the oil market stems not only from its substantial production, but also from the light sweet quality of its crude grades.9
Unlike gulf producers such as Iran, Iraq, Kuwait, and Saudi Arabia where oil was discovered early in the 20th century, oil in Libya was discovered late in the 1950s. In a short period of time oil production was brought on stream, particularly from the Sirte basin, and by the late 1960s Libya had become the world's fourth largest exporter of crude oil.10
This large volume of production and export, however, drastically declined during most of the following four decades. This decline was the outcome of misguided policy pursued by the Gaddafi regime. Compared with other oil producers, Libya offered few incentives to attract international oil companies (IOCs). Furthermore, comprehensive international sanctions were imposed on Libya in response to sponsoring terrorist attacks and seeking to develop weapons of mass destruction.
After these sanctions were finally lifted in the early 2000s, the prospects of Libya resuming its leading role as a major oil producer and consumer seemed promising. Historical deals were signed with IOCs such as BP of Britain and Eni of Italy, among others. These promising prospects, however, did not last long.
The Libyan authorities were not enthusiastic about encouraging foreign investment. Oil companies labored under a crushing bureaucracy including the stipulation that they had to hire Libyans for top jobs despite the small pool of nationals with the appropriate technical and managerial skills.11 Thus harsh fiscal terms combined with institutional and administrative deficiencies have led to a gradual fading of foreign oil companies' interest in Libya.
This brief review of Libya's oil industry suggests that the country's massive oil resources remain largely unexplored. The absence of international oil companies means that the most updated technology in exploration has yet to be used. There are outstanding prospects for large discoveries.
The full utilization of the country's hydrocarbon resources is particularly important given that oil export revenues account for about 95% of the country's hard currency earnings and more than 70% of gross domestic product.12
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