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Thursday, May 18, 2006 11:07:43 PM
By Jason Motlagh
UPI Correspondent
Published May 18, 2006
WASHINGTON -- Washington's decision to lift all remaining sanctions and normalize relations with Libya should boost the Saharan nation's capacity to produce crude oil but will have a minimal effect on short-term U.S. energy demands, experts say.
U.S. Secretary of State Condoleezza Rice's Monday announcement now permits Libya access to new technologies to expand production capacity. American companies that had been banned from working in the country until two years ago are vying for drilling and exploration contracts, though an overnight windfall is not expected.
"Libya for several years has sought new investment to facilitate greater production but it will take at least several years to bring the fruit to market," Jerry Taylor, an energy specialist at the libertarian CATO Institute told United Press International.
Outdated technologies, coupled with OPEC production constraints, are responsible for Libya's diminished output over the past two and a half decades, Taylor said.
A glut of oil on the market until recently compelled the 10-member Organization of Petroleum Exporting Countries to keep Libyan output down, he said, but as global insecurities have pushed oil prices to around $70 a barrel, "the idea is to produce as much oil as possible."
The United States ended a broad trade embargo and restored low-key diplomatic ties with Libya in 2004 after Tripoli pledged not to pursue weapons of mass destruction. The latest development scraps a law mandating U.S. companies secure a license from the Treasury Department to do business with Tripoli.
Libya produces about 1.6 million barrels of crude oil per day and has not pumped above 2 million bpd since the 1979 energy crisis. But the government of long-time pariah Moammar Gadhafi has set a target output of 2 million bpd by 2008 and more than 3 million bpd in 2015.
David Goldwyn, executive director of the U.S.-Libya Business Association, called the benchmark "very ambitious" but feasible within a few extra years now that "all political impediments have been removed."
Gadhafi seeks about $30 billion in foreign investment to advance his desert nation to the booming production levels of the 1970s.
According to the U.S. Energy Information Administration, enhanced recovery technologies and new drilling techniques should ramp up production capacity at major oil fields, including Libya's largest, El-Bouri, which produces some 60,000 bpd, or half its 1995 output.
Despite heavy competition from European firms, a handful of U.S. oil companies are competing for contracts to drill and provide production improving technologies. They include ConocoPhillips, Marathon Oil Corp., and Amerada Hess Corp.
Libya's reliability also remains a concern for some observers.
"Although U.S. oil interests probably welcome the developments in Libya, betting on stability has been problematic of late," Taylor said, citing Venezuela and Colombia as examples where formerly steady supply lines have been rattled by state and insurgent machinations.
Tripoli's removal from the U.S. State Department list of state sponsors of terrorism comes nearly two decades after it was implicated in the 1988 bombing of a Pan Am flight over Lockerbie, Scotland that killed 270 people.
Still, surging energy demands in Asia and volatile climates in the Middle East and Latin America have prompted the Bush administration to take a long view, designating African oil a "strategic national interest." U.S. energy officials hope the Gulf of Guinea region, anchored by Nigeria, will meet a quarter of energy demands by 2010, and American companies are prowling the continent for new prospects.
Libya is an ideal supplier for its light sweet crude, which is easily refined into gasoline, accessibility to U.S. tankers and safe distance from Middle East turmoil.
Experts say the promise of undiscovered reserves that far exceed Libya's proven 39 billion barrels hold the chief appeal to foreign companies jockeying for exploration contracts.
Goldwyn said Libya is vastly "underexplored and underdeveloped," pointing out that its proven reserves alone are already equal to those of heavyweight suppliers Nigeria and Kazakhstan. Less than half of the country's land mass has been surveyed for oil. Libya, for its part, is partial to U.S. companies for their reputation for infrastructural development and training of indigenous personnel, according to Goldwyn.
In January, U.S.-based Occidental, ChevronTexaco and Amerada Hess were awarded exploration contracts, along with companies from Australia, Algeria, Brazil, India and Indonesia.
"The West's ability to extract oil is light years beyond the Middle East," Taylor said. "Libya is probably capable of doing a lot more."
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