Libya must find more oil to raise output beyond 2010

June 21, 2004
Libya must find more oil reserves because it has already produced nearly half of its discovered reserves to date, and countries historically have difficulty maintaining stable production once depletion exceeds 60%, said a senior director of Washington, DC-based PFC Energy.

Libya must find more oil reserves because it has already produced nearly half of its discovered reserves to date, and countries historically have difficulty maintaining stable production once depletion exceeds 60%, said a senior director of Washington, DC-based PFC Energy.

"Libya will be able to ramp up [its oil production] to 1.8 million b/d through the end of the decade," said Michael Rodgers, a member of PFC Energy's upstream group. Beyond 2010, however, Libya must find more reserves in order to maintain or grow production, he added.

His comments were made June 8 during a breakfast for energy executives in Houston sponsored in part by Vinson & Elkins LLP.

Steven R. Butler, Libya desk officer with the US Department of State, and Stephen D. Davis, partner with Vinson & Elkins, also spoke at the breakfast.

US firms' return to Libya

US companies interested in working in Libya should recognize that Libya has not been off-limits to all international investors, Rodgers said.

"There are several European operators that have been active in Libya for a number of years with varying degrees of success," he said. "The American companies will be facing competition that has been there for a while."

Those companies include ENI Petroleum Co. Inc., Repsol YPF SA, Total SA, Norsk Hydro ASA, and OMV AG.

Arab boycott of Israel

Libya is an active participant of the Arab boycott of Israel. US law prohibits companies from activity that supports boycotts not sanctioned by the US government, including the Israel boycott.

Davis said that Vinson & Elkins advises its clients that foreign companies seeking to establish a Libyan branch must obtain a certificate from the Boycott of Israel Office in Libya. The certificate requirement is a legal problem for US companies.

"This is a very ticklish area. I think that the Libyans are going to have to make some movements there—either in their laws or their practices—in order to get US companies to come in to any major degree," Davis said.

Butler said that US government officials are aware of this problem and are working with Libya regarding this issue.

It's difficult to forecast when the US might have completely normalized relations again with Libya, Butler said.

"It's how they respond to our political message that dictates how we move," he said of US policy toward Libya.

Libya's reserves

The nation's reserves additions have dropped off dramatically since the 1960s. Meanwhile, Libya's discoveries have gotten smaller, as is typical with any mature production base, Rodgers said.

"A high percentage (90%) of Libya's proven reserve base is developed, but historic rates have been managed such that the current producing base is likely to have a relatively small base decline factor (2%). The implication is that Libya can grow production from its current discovery inventory without too much difficulty," Rodgers said.

Considering the global production capacity and excluding production from the Organization of Petroleum Exporting Countries and the former Soviet Union, PFC Energy forecasts relatively flat oil production capacity "as it has been for the last 4-5 years," Rodgers said.

"Libya is one of the six OPEC countries that clearly has the potential to ramp up production in order to handle whatever growing demand might be placed on OPEC reserves. There is an expected production increase step already planned through the development of fields by already active foreign operators," he said.