... and honoured to work with Libya's National Oil Corporation [NOC] to develop a modern LNG industry, and explore for and develop gas in the prolific Sirte Basin. We believe that this is the beginning of a new, lasting and fruitful partnership with Libya," said Malcolm Brinded, Shell's Executive Director for Exploration & Production, following the signing of an agreement in May by Libya's NOC and Shell for a major gas exploration and LNG (Liquefied Natural Gas) development project in Libya's Sirte Basin. The agreement includes a US $105 million rejuvenation and upgrade of the existing LNG plant at Brega and the exploration and development of gas from five blocks covering an area of 22,000 square kilometres. 'Shell in the Middle East' goes to Libya to conduct exclusive interviews with Dr Shokri Ghanem, Prime Minister of the Great Socialist People's Libyan Arab Jamahiriya, and Abdulla El Badri, Chairman of NOC. Bobby Schuck reports...
Dr Shokri Ghanem, Prime Minister of the Great Socialist People's Libyan Arab Jamahiriya, says, "For a number of decades the Libyan economy has been completely controlled by the State. What we are trying to do today, after belatedly discovering that the State cannot give everything to everyone and that the performance of the public administration is not up to the level of our expectations, is to invite more people to participate in the economic process.
"As a result, we have decided to open Libya's doors to the private sector and we are offering incentives to people to participate in this economic programme. Our goal is to expand the ownership of property and shares and to encourage people to open and own their own businesses, as well as owning shares in other companies in Libya.
"At the same time we are privatising many State-owned companies, 361 so far, many of which are in the industrial and agricultural sectors where performance by the incumbent management has been poor.
"So, our goal is not just to privatise State-owned industry but to open up the economy to private investors which, we hope, will attract an inflow of capital to put the economy on a fast track to growth.
"So far, through the initial privatisation programme, we have seen a jump-start in the growth of the economy with many new projects under way. We are endeavouring to support these projects by cutting red tape and reducing levels of bureaucracy within the country to make things easier for new investors.
"One of our major goals is to encourage competitiveness and, most importantly, transparency. Transparency will become increasingly evident and, indeed, in the oil and gas sector we have already adopted and introduced transparent processes with the recent rounds of bidding for oil and gas concessions," says Dr Shokri.
He then goes on to say, "When I am asked to define my goal for the Libyan economy it has to be the improvement of the quality and standard of living of the people of Libya. This will be the real test of the performance of my economic policies.
"To do this I have set priorities. The first of my priorities is to tackle the question of unemployment. Strange as it may seem in a country with a viable economy, and a population of less than six million, we have over 250,000 Libyans looking for jobs, whilst we have more than one million foreign workers in the country.
"The unemployment issue does not revolve around a lack of jobs, merely a lack of the necessary mechanisms to ensure that Libyans are given first choice of these jobs. By introducing certain legislation I hope that we will be able to strike the correct balance between providing jobs for Libyans whilst permitting foreigners to work in Libya, as indeed we must do as part of our opening up of the Libyan economy.
"There are many reasons for the number of foreign workers and the Libyan people are themselves partly to blame. In a society where the public sector has dominance, people prefer to work in safe and secure jobs in air-conditioned offices rather than in the harsh conditions of the desert. This leaves openings for foreign workers to fill these types of jobs.
"In some cases foreign companies are to blame as they prefer to employ people from their own countries who are easier to control. With big projects, which require as many as 1,000 or 5,000 people, it is often easier to employ them all at once from a foreign source rather than on a piece-meal basis here in Libya.
"Labour laws, made by the Libyan Government, are also partly to blame as they are often made in favour of nationals who can sue foreign companies, and this also acts as a deterrent to foreign companies to employ local staff.
"A lack of training is often given as another reason for not employing Libyan staff. I do not agree with this as Libya has a very good record of education and training and the standards in the country are high. Indeed, I have met chairmen of international companies who have praised the high level of training and education in Libya and who recruit Libyan staff to work in their organisations worldwide. That said, Libya did go through a period of time when our schools did not teach English and this has been a major setback for many of our young people.
"The oil and gas sector is a major earner of foreign currency for Libya, bringing in some 95 per cent of foreign earnings. However, it is only generating 40 to 45 per cent of Libya's GDP [Gross Domestic Product], and is by no means the major employer in the economy.
"The agricultural, industrial and service sectors are the main employers and contributors to the country's GDP. Whilst we are of course trying to develop new sectors, such as tourism, the oil and gas sector is still, however, the primary foreign cash earner.
"We have to be careful to strike a balance so we don't kill the golden goose but at the same time I have to protect the people of Libya, and the development of the country's economy must be carried out by the people of Libya and not imported from outside."
On the subject of technology, Dr Shokri says, "Whilst there is no doubt that years of sanctions have deprived Libya of many luxury items and other commodities, it has also been deprived of some new technology. But one must always remember that it is a big world, a global village, and over the years there have been many countries more than willing to sell us what we needed. If we couldn't get it from here, then we would get it from there, even if we had to pay a little more. Libya has a long record of trading with Europe and, indeed, we are in close proximity to Europe and have many friends there.
"So in the end, whilst sanctions have undoubtedly affected the Libyan economy, I am glad to say they have not killed it. Now that the problems of sanctions have been resolved I expect that new technology will readily flow into Libya."
Dr Shokri continues, "My second priority is to improve housing conditions and the availability of new houses for ordinary people. Here we are undertaking major public housing developments.
"The current high oil prices have been an enormous bonus, not just for Libya but for all oil producing countries. Of course we will be investing some of the money to develop the economy and use it as an engine for growth by funding public housing and lending it to people wishing to start new businesses. But much of the money will find its way into the Future Generation Fund for the Libyan people to be invested for the future of the country."
Dr Shokri then moves on to talk more specifically about Shell, and says, "I am very glad that many foreign companies are now coming to Libya and investing in our economy. Having major international companies like Shell investing in Libya is extremely good as Shell brings with it a wealth of global experience, financial ability and technology.
"There is very good potential for the discovery of large gas reserves in the Sirte Basin area. We are not just looking at the present Liquefied Natural Gas Development Agreement with Shell but consider this to be just a beginning and we hope that Shell will participate and be successful in the forthcoming round of bidding for new concessions.
"I hope that Shell will be able and willing to use its experience and financial capabilities to help in the development of Libya's oil and gas sector. I am looking forward to Shell employing many Libyan nationals and to assisting in the development and training of the Libyan workforce.
"I firmly believe that Shell will add to the growth of the economy and I hope that Shell will have good luck and find a great deal of gas. Shell was here in the past and I look forward to Shell's long and enduring relationship with Libya in the future. I am very optimistic and happy that a company like Shell is here in Libya and partnering with Libya's National Oil Corporation," Dr Shokri concludes.
"Libya is currently producing over 1.7 million barrels per day of oil and around 2.3 billion standard cubic feet of gas per day," says Abdulla El Badri, Chairman of Libya's National Oil Corporation (NOC).
"Proven oil reserves amount to 36 billion barrels of oil, whilst gas reserves are over 52 trillion cubic feet of gas. We have just held a very successful round of bidding for new exploration concessions and expect to finish the second in October. Exploration activities are expected to begin in the very near future.
"It is expected that over the next few years Libya will be able to add between 20 to 30 billion barrels of oil and some 50 to 80 trillion cubic feet of gas to the country's hydrocarbon reserves.
"So far, only about 30 per cent of Libya's surface area has been explored for oil and gas so we have very high hopes for further major discoveries in the future. However, it is not just through new exploration discoveries that we intend to increase both production and reserves, but also through the application of enhanced oil recovery [EOR] techniques.
"Libya's oil production has been fairly steady over the years, despite the imposition of sanctions on the country, and we have been able to maintain a steady production of between 1.2 and 1.4 million barrels per day during the last 20 years as per OPEC quotas.
"Libya's peak oil production was in 1970 when we achieved over 3.2 million barrels of oil per day. As we talk today, Libya is developing many oil and gas prospects and our target for the future is to increase daily oil production to 2 million barrels per day by 2007 and by 2011 we expect to have increased daily oil production to 3 million barrels.
"Some of this increase is expected to come from existing undeveloped fields and the use of EOR techniques in existing mature fields, in addition to the development of new discoveries.
"We expect EOR to be a major factor in the development of our existing fields, many of which are mature and depleted. Horizontal drilling and water and gas injection techniques are the sort of technologies needed to enable us to obtain the maximum recoverable reserves from these fields.
"We will be offering some of these fields up as part of the bidding process and hope international companies will bring in their expertise and advanced technology to assist Libya in achieving its goals.
"This will not come cheaply and we estimate that some US $15 billion will be required to achieve our goals. The Libyan Government has agreed to provide whatever finance NOC needs to develop the country's oil and gas reserves but there is a great deal of work to be done and external financing in the exploration and development of existing fields will be warmly welcomed," he says.
Focusing more specifically on the subject of gas, Abdulla El Badri says, "Whilst oil is of major importance to Libya's economy, eight years ago we realised that gas was a very important commodity and we wanted to have a commercial presence in this market. Since then gas has been a major source of income for the country and will continue to grow in importance.
"Libya was the second country in the world to develop LNG facilities and our Brega LNG plant has been steadily producing LNG since 1970. The recent agreement signed between NOC and Shell focuses on the exploration for gas in the Sirte Basin in the east of the country which, if found in sufficient quantities, will be used to increase feedstock to the LNG plant and, ultimately, increase LNG exports.
"Another part of the agreement with Shell calls for a US $105 million rejuvenation of the Brega LNG plant to see how we can improve some of the operations there, with a focus on such things as maintenance and HSE [Health, Safety and Environment].
"If Shell's exploration activities are successful and the quantities of gas discovered cannot be processed by the Brega LNG plant, then the agreement with Shell includes an option to develop further LNG trains alongside the existing Brega LNG plant.
"In the west of the country there is the Western Libya Gas Project, which is exporting natural gas from the Wafa field via a 540-kilometre pipeline across the desert to the coast and on through a 520-kilometre sub-sea pipeline to Sicily and then on to the Italian mainland. If more gas is found in the west, then we will look at the option of increasing gas exports to Europe.
"In other parts of the country, as and when we find gas it will be delivered into Libya's gas network, which is currently undergoing expansion. When completed, the network will ensure that all industrial areas in the country have adequate and reliable supplies of natural gas. These industrial areas include petrochemical plants and the country's electricity generating plants, which are either using gas now or are scheduled for conversion in the future, and the country's cement and steel plants.
"In the future we hope to ensure that all major cities in the country are also connected to the gas network so that we can expand the distribution of gas to the commercial and domestic sectors as well."
Moving on to talk about refining, petrochemicals and the downstream retail and lubricants sectors, he says, "Another area in which we will be focusing in the next few years is Libya's refining sector which today has a capacity of some 380,000 barrels per day of refined products. Many of our refineries are old and need to be upgraded and improved and talks are under way to build new refineries in Zwara and Tobruk.
"Ras Lanuf is our biggest refinery, with a current production of 200,000 barrels per day of refined products, of which 50 per cent is fuel oil. Demand for fuel oil in the world's market is decreasing so we need to look at ways of upgrading the facilities to produce other more valuable products.
"Another area on which we will be focusing to achieve economic diversification is the petrochemicals sector. Here we will be considering the development of the Marsah El Brega and Ras Lanuf petrochemicals complexes, as well as examining possibilities for joint ventures with major petrochemicals producers to further develop this industry.
"With regard to the downstream retail and lubricants sector, we are examining ways in which to encourage the participation of multinational companies in this area."
On the subject of Shell's involvement in the future of Libya, he says, "During the years of sanctions against Libya we invested a great deal of money in the training and education of our people and this is one of the reasons we have been able to maintain oil and gas production levels throughout the period of sanctions.
"However, we have been unable to access the world's latest state-of-the-art technologies for many years but now through agreements with companies like Shell we hope that we will have access to the latest technology and world-class training, as well as access to some of the latest management and maintenance systems which have been developed to improve efficiency in the energy sector.
"Shell is a major multinational company in the energy sector and one of the best companies in the world. Naturally, we hope that Shell will be successful in its venture here in Libya and find substantial quantities of gas and go on to help in the development of our existing and future LNG business.
"We are also hopeful that Shell will find oil during its exploration activities for gas and the agreement between us allows for this and also for Shell to develop any oil reserves which it finds.
"We hope that this will just be the beginning of our new relationship with Shell. We hope that we will both find more ways to co-operate together and that the relationship will develop to become a partnership for the long term.
"I have the highest expectations for Libya's oil and gas sector and I hope that Shell will work with us to provide NOC and its sister companies with a new and modern outlook for the future," he concludes.
"The signing of the Liquefied Natural Gas Development Agreement [LNGDA] marked a major milestone for Shell in Libya," says Med Mahmoud, Shell Country Chairman in Libya.
"It fits well with our strategy of 'more upstream and profitable downstream' and it should help to strengthen our global LNG leadership position.
"The LNGDA was ratified by Libya's General People's Committee in May and signed by the Chairman of NOC and Malcolm Brinded, Shell's Executive Director for Exploration & Production.
"The agreement provides Shell with one of the largest exploration acreage awards ever made in Libya, covering an area of around 22,000 square kilometres in the north Sirte Basin, together with rejuvenation of the existing LNG plant at Brega.
"In addition, the agreement provides for further investment to increase production capacity at the Brega LNG plant and for the development of new LNG facilities.
"The Brega LNG plant is currently operated and managed by the Sirte Oil Company [SOC] and that will continue to be the case. SOC is one of Libya's largest operating companies. The company holds extensive acreage in the Sirte Basin and has substantial exploration, production and development facilities, as well as an established infrastructure in the area.
"At Marsah El Brega, the location of the Brega LNG plant, SOC also has other substantial operations. These include petrochemicals facilities, a refinery and port facilities for export of crude oil, petrochemicals and LNG."
Med goes on to explain, "The agreement between NOC and Shell calls for a high level of cooperation and partnership between SOC and Shell for the rejuvenation of the Brega LNG plant. Shell Global Solutions will be acting as Project Manager and Technical Advisor and experts from Shell have already paid several visits to the Brega LNG plant to discuss the scope of work with SOC managers.
"A project team has been formed consisting of both SOC and Shell members and during the next few months the full scope of work will be assessed and a programme developed for the plant rejuvenation.
"The exploration team, led by Marc Gerrits, our Exploration Manager, is already present in the country and we expect to award the seismic contracts later this year.
"With SOC as a major operator in the Sirte Basin I expect that we will find much common ground where SOC and Shell will be able to develop further areas for cooperation of mutual benefit, and hope that this agreement will be just the foundation stone for much greater cooperation.
"In the meantime, we are keen to explore opportunities to accelerate the capacity upgrade phase at the Brega LNG plant by working with NOC to identify other sources of gas supplies for the plant, without affecting requirements for domestic demand. This could be undeveloped gas volumes, associated gas or gas currently being flared.
The Brega LNG development could pave the way to bigger LNG developments."
Med concludes, "I am delighted that the signing of the agreement is now behind us and we can look forward to delivering value for both Libya and Shell.
"I see Shell entering into a new sustainable partnership with Libya for the long term, focusing not just on delivering successful projects but on technology transfer, the sharing of best practices and on training opportunities for the Libyan people. Indeed, Shell has already recruited many Libyans since the signing of the agreement.
"I have seen a lot of changes in Libya in the 15 months I have been here. The mood in the country is optimistic. The economy is being reformed and perhaps the best evidence for this can be seen in the higher volumes of traffic on the roads, the new shops and buildings opening up everywhere and the lengths of the immigration queues at Tripoli Airport.
"I am confident that more and more changes will take place in the next few years and that these will be in the best interests of the people of Libya," he concludes.
© Shell in the Middle East 2005
