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Libya
Hydrocarbons and Mining
Since the early 1960s,
the petroleum industry has increasingly dominated the whole economy,
although in 1984 it provided direct employment for fewer than
10,000 Libyans. The development of the oil industry was remarkable,
both in terms of its rapidity and its proliferation. An exceptional
combination of circumstances contributed to the development of
the petroleum sector. Like Algerian oil, Libyan crude oil, while
having a rather high wax content, is lighter and easier to handle
than crudes from most other petroleum areas. It also has a low
sulfur content, which makes it easier on internal combustion engines
and less of a pollution contributant than other crudes. For this
reason, Libyan crudes had a receptive market in Europe from the
start; furthermore, Libya is one-third closer to European markets
than the oil ports of the eastern Mediterranean. When the Suez
Canal was closed by the June 1967 War, forcing tankers from Iran,
Iraq, and the Arabian Peninsula to go around the Cape of Good
Hope, the advantages of Libyan petroleum were enhanced. Moreover,
the lay of the land itself, which allows the output of the wells
to be piped directly and easily to dockside totally over Libya's
territory, assured steadiness of supply, which has not necessarily
been the case for eastern Mediterranean pipeline outlets. In addition,
Libya's petroleum development benefited from the technology and
experience acquired by the industry in other parts of the petroleum
world during the preceding fifty years. Thus, by 1977 Libya was
the seventh largest oil producer in the world. However, Libya's
position declined somewhat in the early 1980s as OPEC production
quotas were cut. By 1986 Libya was only the fifteenth largest
producer of crude oil.
For the petroleum industry, the military coup of 1969 did not
represent a rupture of continuity; it did, however, introduce
a shift in government attitudes toward the purpose and function
of the foreign operating companies in line with its general nationalist-socialist
political and socioeconomic orientation. It is therefore useful
to visualize Libya's petroleum development in terms of two periods,
dividing at September 1, 1969, with the earlier period serving
to prepare for the later.
Active exploration started in 1953 after oil was discovered in
neighboring Algeria. The first well was begun in 1956 in western
Fezzan, and the first oil was struck in 1957. Esso (subsequently
Exxon) made the first commercial strike in 1959, just as several
firms were planning to give up exploration. The first oil flowed
by pipeline from Esso's concession at Zaltan to its export facilities
at Marsa al Burayqah in 1961. The rush was on, with other companies
entering Libya and additional discoveries being made. The original
major strikes were in the Sirtica Basin, one of the world's largest
oil fields, southeast of the Gulf of Sidra; in 1987 this area
was still the source of the bulk of Libya's output. In 1969 a
major strike was made at Sarir, well to the southeast of the Sirtica
Basin fields, and minor fields were located in northwestern Tripolitania.
New deposits were found in the Ghadamis sedimentation basin (400
kilometers southwest of Tripoli) in 1974 and in offshore fields
30 kilometers northwest of Tripoli in 1977.
Since 1977 efforts to tap new deposits have concentrated on Libya's
offshore fields. The large Bouri field was due to be brought on-stream
by the NOC and AGIP (Azienda Generale Italiana Petroli), a subsidiary
of the Italian state oil company consortium, in late 1987. Other
offshore exploration ventures were launched following the settlement
of maritime boundary disputes with Tunisia in 1982 and Malta in
1983. Libyan access to offshore deposits in these formerly disputed
areas was significant, because they may contain as much as 7 billion
barrels of oil.
Petroleum production in 1985 was still governed by the Petroleum
Law of 1955, which was amended in 1961, 1965, and 1971. The government,
through the Ministry of Petroleum, preferred to grant sizable
concessions to a number of different foreign companies. To induce
rapid exploitation of deposits, the typical concession contract
called for progressive nationalization of Libyan operations run
by foreign companies over a span of ten years, with the Libyan
government's share starting as one-fourth and ending at three-fourths.
The government extracted most of its compensation in the form
of product sharing. When early concessions to several large companies
by Esso, which was the first to export Libyan crude in 1961, proved
to be highly profitable, many independent oil companies from noncommunist
countries set up similar operations in Libya. In 1969 about thrity-three
companies held concessions. Concessionary terms were somewhat
tightened during the 1970s, as the postrevolutionary government
pursued a more active policy of nationalization. The vehicle for
this policy was the revamped state NOC, which, as noted, was formed
in 1970 from LIPETCO. In July 1970, NOC's jurisdiction was expanded
by legislation that nationalized the foreign-owned Esso, Shell,
and Ente Nazionale Idrocarbuno (ENI) marketing subsidiaries, and
a small local company, Petro Libya, and transferred their operations
to NOC. These operations included managing companies in the importing,
distributing, and selling of refined petroleum products at subsidized
prices in Libya. In 1971 the companies were merged into a single
countrywide marketing enterprise called the Brega Company, which
also marketed oil and gas abroad for the government.
The new government's nationalization campaign commenced in December
1971, when it nationalized the British Petroleum share of the
British Petroleum-Bunker Hunt Sarir field in retaliation for the
British government's failure to intervene to prevent Iran from
taking possession of three small islands in the Persian Gulf belonging
to the United Arab Emirates. It was not until late 1974 that a
compensation agreement was reached between British Petroleum and
the Libyan government over the settlement of these nationalized
assets. In December 1972, Libya moved against British Petroleum's
former partner Bunker Hunt and demanded a 50-percent participation
in its operations. When Bunker Hunt refused, its assets were nationalized
in June 1973 and turned over to one of NOC's subsidiaries, as
had been done earlier with British Petroleum's assets.
In late 1972, a 50-percent participation had been agreed upon
with the Italian joint company, ENI-AGIP, and in early 1973 talks
began with the Occidental Petroleum Corporation and with the Oasis
group. Occidental, accounting for about 15 percent of total production,
was one of the major independent producers. In July 1973, it agreed
to NOC's purchase of 51 percent of its assets. The Oasis group,
another major producer, was one-third owned by the Continental
Oil Company, one-third by Marathon Petroleum, and one- sixth each
by Amerada Petroleum Company and Shell. The Oasis group agreed
to Libyan 51-percent participation in August 1973. On September
1, 1973, Libya unilaterally announced that it was taking over
51 percent of the remaining oil companies, except for a few small
operators.
Several foreign oil companies balked at the Libyan proposal but
soon found that the government's policy was firm: agree to Libyan
participation or face nationalization. Shell refused to accept
Libyan participation in its share of the Oasis group, and its
operations were nationalized in March 1974. A month earlier, three
other reluctant oil companies had been nationalized: Texaco, the
California Asiatic Company, and the Libyan-American Oil Company.
They finally received compensation for their assets in 1977.
Political events of the 1980s convinced many American-owned companies
of the advisability of selling off their Libyan operations. In
1981 Exxon withdrew from Libya, pulling out its long-standing
subsidiary operations. Mobil followed suit in 1982, when it withdrew
from its operations in the Ras al Unuf system. These withdrawals
gave NOC an even greater share in the overall oil industry. Another
round of advancing nationalization was made possible in 1986,
when United States President Ronald Reagan announced on January
7 his intention to require American companies to divest from their
operations in Libya. It was unclear at that time, however, whether
the five companies involved would sell their shares to NOC (probably
at a substantial loss), or merely transfer them to European subsidiaries
not affected by the president's sanctions. According to the latest
estimates available in early 1987, NOC's share of the total equity
in Libyan petroleum operations stood at 70 percent, with two operating
subsidiaries and at least a 50-percent share in each major private
concession.
Although NOC nominally had been under control of the Ministry
of Petroleum, foreign observers were uncertain what real control
the ministry had over the NOC. The ministry's dissolution in March
1986 produced little comment, which seemed to indicate that NOC
was the principal instrument of government policy in the oil sector
and controlled about two-thirds of Libya's total oil production.
Since 1974 no new concessions have been granted, although the
Libyan government has negotiated production-sharing agreements
with existing concession holders to induce them to search for
new deposits, particularly in the offshore region bordering Tunisia
where the large Bouri field is located. These agreements have
called for NOC to receive 81 percent of production if the discovery
is offshore and 85 percent if it is onshore.
Libyan price policy has largely been settled in meetings of OPEC,
which it joined in 1962. Both the prerevolutionary and postrevolutionary
governments have remained committed to OPEC as an instrument for
maximizing their total oil revenues. Petroleum production (almost
all of which was exported) declined during the first half of the
1970s, as a result of both the OPEC and Libyan policy of cutting
production to influence price. During the late 1970s, production
rose slightly, only to fall again in the 1980s when OPEC reduced
its members' production quotas in an attempt to halt the oil price
slide. In March 1983, Libya accepted its OPEC quota of 1.1 million
barrels per day (bpd--see
Glossary). This figure was revised downward again in November
1984, when it was set at 990,000 bpd. Libyan oil production in
1986 averaged 1,137 thousand bpd, having regained the same production
it had in 1981. Generally, Libya has adhered to its OPEC quota.
In 1986 Libyan oil fields were served by a complicated network
of oil pipelines leading to the five principal export terminals
at Marsa al Burayqah, As Sidra, Ras al Unuf, Marsa al Hariqah,
and Az Zuwaytinah. The Sidra terminal exported the largest volume
of oil, about 30 percent of the total in 1981. A future sixth
terminal was planned at Zuwarah in western Libya. Pipelines to
these terminals served more than one company, thus mixing different
oil blends that were standardized for export. The share that an
individual company received from exports was determined by the
amount and quality or the oil that entered the common pipeline.
The share of the oil belonging to NOC was either sold directly
on the open market or sold back to its producing partner. Libyan
refining capacity increased dramatically in 1985, when the export
refinery at Ras al Unuf came on stream with a 220,000-bpd capacity.
Other refineries existed at Tobruk (20, 000 bpd), Marsa al Burayqah
(11,000 bpd), and Az Zawiyah (116,000 bpd), giving Libya an overall
refining capacity in 1985 of 367,000 bdp.
Production of natural gas in Libya received a major boost in
1971, when a law was passed requiring the oil companies to store
and liquify the natural gas condensate from their wells, rather
than burning it off as many had previously done. However, natural
gas production has lagged far behind oil because the high costs
of transport and liquefaction have made it a less attractive alternative.
A large liquefaction plant was built at Marsa al Burayqah in 1968,
but its export performance has been spotty. About 70 percent of
Libya's natural gas production is consumed domestically. Production
stood at 12.35 billion cubic meters in 1984, down from 20.38 billion
cubic meters in 1980. Total reserves of natural gas were estimated
at 600 billion cubic meters in 1985.
According to information available in 1987, Libya's commercially
usable mineral resources--apart from its hydrocarbons- -were limited
to a large iron-ore deposit in the Wadi ash Shati near Sabha in
Fezzan , and scattered, deposits of gypsum, limestone, cement
rock, salt, and building stone. There also were small, widely
scattered and currently noncommercial deposits of phosphate rock,
manganese, barite-celestite, sodium carbonate, sulfur, and alum.
Although much of the country had been photographed by the petroleum
companies and large portions of it had been mapped by the Italians,
by British and American military personnel, and by the United
States Geological Survey (from 1954 to 1962) in search of water
and minerals, the country is so large that in early 1987 much
of it still had not been mapped at scales suitable for definitive
mineral inventory.
The Wadi ash Shati iron-ore deposit is apparently one of the
largest in the world. Suitable in considerable part for strip
mining, it outcrops in or underlies roughly eighty square kilometers
of the valley. According to information in the mid- 1980s, none
of it was high-grade ore. Preliminary estimates suggest that the
amount of 30 to 40 percent iron-content ore in the deposits totals
anywhere between 700 million and 2 billion tons. Because of the
distances and technical problems involved, profitable exploitation
of the deposits would depend on the construction of a proposed
railroad to the coast. Development of the deposits would allow
Libya self-sufficiency in iron and steel, although probably at
costs appreciably above those available on an import basis. In
1974 a state-owned company, the General Iron and Steel Corporation,
was formed to exploit the deposits. The government hoped that
the planned iron and steel manufacturing plant at Misratah, scheduled
for completion in 1986, eventually would be able to exploit the
Wadi ash Shati deposits. But the commercial viability of using
these deposits was not assumed, since initial plans called for
the Misratah works to be fed with imported iron-ore pellets.
Other scattered iron ore deposits in northwestern Tripolitania
and northern Fezzan were apparently insufficient to be commercially
exploitable under current conditions. Manganese was known to occur
in northwestern Tripolitania and, in combination with the iron-ore
deposits, at several locations in the Wadi ash Shati. Known deposits,
however, were not considered commercially exploitable.
Salt flats, formed by evaporation at lagoonal deposits near the
coast and in closed depressions in the desert interior, are widely
scattered through the northern part of the country. In some cases,
especially along the Gulf of Sidra, they cover large areas. In
the 1980s, about 11,000 tons of salt were produced annually. Evidences
of sulfur have been reported at scattered points in the salt flats
of the Sirtica Basin and in various parts of Fezzan; sulfur occurs
in pure form in Fezzan and is associated with sulfur springs in
the Sirtica Basin.
Sodium carbonate (trona) is formed as a crust at the edges and
bottoms of a number of dry lakes in Fezzan. Traditionally, about
100 metric tons a year were harvested and sent to market at Sabha.
Because sodium carbonate is used in petroleum refining, as well
as traditionally in soapmaking and water refining, production
may be increased as part of the government's development effort
in Fezzan.
Because of the government's interest in social welfare and its
financial ability to support it, construction is bound to be a
major area of future economic development. Except for wood, the
raw materials needed for construction--stone, gravel, clay, limestone,
gypsum, and cheap fuel--are found in abundant quantities and suitable
commercial qualities adjacent to the major population and production
centers in both northern Tripolitania and Cyrenaica. In 1986 plans
were announced for a new gypsum mine with a planned output of
200,000 to 300,000 tons a year. Several thousand tons of gypsum
are mined annually and indicated reserves of gypsum total about
200 million tons.
Data as of 1987
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