Colonel Moamer Gaddafi's empire harbours a lot of oil. But the black gold business is especially tough in Libya, and full of political pitfalls. That has forced some international companies to think about withdrawing from the North African country.
Seven years after UN sanctions against Libya were lifted, more than 50 international oil companies are prospecting in Libya. But disenchantment is spreading throughout the industry. Big finds have not appeared, so far. Almost all the industrys major companies participated in the last four calls for tenders, amongst them German firms RWE and Wintershall, as well as several US firms.
In the beginning, the atmosphere was euphoric. Some companies announced during the first year that they had made discoveries. Industry experts, however, think that the results published so far have been, overall, rather disappointing. The areas under exploration were offered under relatively tough conditions in 2003 by Libya's national oil company, NOC. This led to very competitive terms which the international oil companies had to accept.
"The competition at the time was strong," Jan Willem Eggink, chairman of the Shell subsidiary in Tripoli recalls. Shell is currently searching for gas in the Mars al-Brega area, but so far has not found quantities large enough for profitable export. Exploration work in the area is supposed to continue for another three years.
Many companies marched into these new areas with very high expectations, but most of the exploration projects have been disappointing," another European company representative explains in Tripoli. He assumes that some companies had participated, not because of the short term yield, but rather simply in order to have a foot in the door to Libya." By doing so, they hoped to be on the ground in new locations across Libya when output from other, already active, fields in the country begins to drop.
So-called enhanced oil recovery (EOR) technology will be necessary to keep production stable and high in the already active fields. But Libya's NOC does not have this equipment. However, EOR negotiations between the companies that can provide it and the NOC, which just moved into a new modern building in the city centre a few weeks ago, are not advancing.
NOC Director, Shukri Ghanem, who was formerly the prime minister, is now pushing for every foreign oil company to enter a joint venture with a local partner. Libya is one of Europe's most important oil suppliers. At the moment, the country produces 1.6 million barrels (one barrel equals 159 litres) per day, with reserves estimated to be around 44 billion barrels.
By comparison, Saudi Arabia is believed to have around 262 billion barrels of crude oil under its desert sands. Doing business in Libya not only requires the latest technology and the best offer. The general political situation and the mood of its eccentric head of state are equally important.
This might explain why some European heads of state and government patiently endure Gaddafi's performances no matter if he is asking for the dissolution of Switzerland or proposing the conversion of Europeans to Islam. A deep sea drilling project, which is scheduled off the Libyan coast this autumn has furnished new explosive political issues. On one hand, environmental activists are warning of the risk of a disaster in the Mediterranean, similar to the oil catastrophe in the Gulf of Mexico. This is because the oil in the Sirte Basin lies 200 metres deeper than oil in the Gulf of Mexico.
Furthermore, some US politicians entertain the suspicion that British government members only advocated the release of Lockerbie bomber Abdelbaset al-Megrahi last year in order to pave the way back to Libya for BP. Al-Megrahi was released from imprisonment in Scotland on grounds that he was terminally ill, after serving eight years in prison for the 1988 airplane bombing. BP had been absent from the Libyan oil market for thirty years.
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