Friday, February 12, 2010

Libya's oily numbers

Commentary, Executive magazine

When sanctions against Libya were lifted in 2004, international oil companies (IOCs) viewed the former rogue state as the El Dorado of black gold, and clamored to be the first to exploit the country’s riches after a 30-year hiatus. But five years later, IOCs are reining in their enthusiasm as doubts arise over how much oil Libya really has.

As international relations thawed, Libya’s National Oil Corporation (NOC) embarked on a global campaign to attract IOCs, offering competitive bidding rounds to explore and develop the country’s energy reserves. Part of the enticement was an oft repeated statement that 70 percent of the country was yet to be explored for oil and that Libya had 39 billion barrels in proven reserves.

These ‘facts’ are still doing the rounds, with the “BP Statistical Review of World Energy 2009” and the United States’ International Energy Agency (IEA) stating Libya has 43.7 billion barrels of proven oil reserves. At face value, this would mean Libya has the fourteenth largest reserves in the world and the largest in Africa, ahead of Nigeria’s 36.2 billion barrels.

But Libya, like the majority of oil producing countries, has been playing it thick and fast with their figures. A leading petroleum geologist familiar with Libya, who asked for anonymity so he could still work in the country, told me: “[The reserve] is nothing like that, it is a third to half of that figure.”

That would mean anywhere between 14 to 21 billion barrels, placing Libya second in reserves in Africa, ahead of Algeria’s 12.2 billion barrels. And as for 70 percent of the country being unexplored, that figure is “nonsense; it is very well explored,” said the source.

The geologist added that the amount of reserves that Libya actually has are evident at the NOC’s technical conferences, where diagrams are shown that indicate less than half of the official government figure — if you know what you are looking for. When the presenters are questioned in public, “they squirm,” the source said, but when queried in private on a technical basis they agree that Libya doesn’t have the reserves it claims.

There was further indication that Libya has been inflating the figures when the NOC last year revised their production capacity target of 3 million barrels per day by 2015 down to 2.3 million barrels per day.

The exploration licenses Libya granted to IOCs are also indicative of there being less in the ground than hoped. Out of the 90 wells drilled after the country’s most recent exploration and production sharing arrangements — the EPSA-4 acreage, launched in 2004 — only five discoveries have been made. International oil and gas exploration and production company Occidental has had a zero success rate, drilling 18 dry wells.

IOCs are now banking on the Sirt, Ghadames and Kufra fields to turn up trumps, but even if there are sizable finds they are unlikely to boost the reserve’s figure to 43 billion barrels. The NOC’s current policy is to focus on developing existing fields — there are an estimated 60 to be tapped — rather than offer IOCs expensive tenders to explore territory that may well draw a blank.

So why is Libya cooking the books? One reason is that it attracts more foreign direct investment (FDI) and interest from IOCs, similar to how countries like to boast of huge FDI inflows yet fail to mention that however-many billions of dollars is over 10 years or has been ‘pledged’ in investment — very different from actual annual inflows. Secondly, it puts Libya in a better bargaining position within the Organization of Petroleum Exporting Countries (OPEC) when it comes to oil quotas.

“It isn’t acceptable within the NOC to question [the] numbers because [they are] given for political reasons, for political advantage within OPEC,” said the source.

But why would BP and the IEA back up the Libyan figures? Well, the British oil giant is operating in Libya and presumably doesn’t want to ruffle any feathers. As for the IEA, its credibility came under fire last November when a whistleblower said the agency was deliberately underplaying an impending global shortage over “fears that panic could spread on the financial markets if the figures were brought down further.”

The game that Libya is playing is dangerous and, alas, one that it is not playing alone. Saudi Arabia, the world’s largest oil producer, has never been transparent with its reserve figures, nor are the majority of OPEC producers.

If we can’t take oil reserves at face value and trust them, then how much oil is there? If you subtract 20 odd billion barrels from Libya’s ‘proven’ reserves, and so many billion barrels from, say, Saudi, Algerian and the United Arab Emirates’ reserves, among others, then the total global oil reserves would be substantially less than claimed. It’s time Libya — and everyone else — starts telling it like it really is or the financial markets could be in for yet another turbulent ride.

PAUL COCHRANE is the Middle East correspondent for International News Services and writes for Petroleum Review



Tarek Alwan said...

First of all, the title of your subject (Libya’s oil numbers) made it very clear that you are going to write something totally different from the truth which everyone knows about Libya’s oil and gas industry.
There was no mention of the horrible impacts of the sanctions which lasted for 10 years, anyway, I can assure you that Libya has more 41.50 million barrels and 54.5 billion cubic of gas. Furthermore, there are more than 50 IOCs operating in Libya and the majority of them are satisfied but just one company (Woodside) left the country to concentrate on other areas of it activities and to correct your information and to enlighten you.
NOC has just published a report about its activities in last year and was written in Arabic language and here is a translated version of some of the important aspects of the report.

During last year 2009 there were 64 exploratory wells onshore and offshore activities in Libya reported by Libya’s NOC and it was successful in 33 wells and the overall percentage of success was 51.5% in which resulted in 20 new oil and gas discoveries adding 2.03 billion barrels of oil and 1.3 trillion cubic feet of gas to Libya’s reserves.

Libya, for the first time in the history of exploration activities in the Libyan deep water of more than 200 meters, also started an exploratory drilling in deep water.

In Seismic activities, too, there were more than of 12.784 km in length and 55.000 KM square of 2D and 3D seismic data collected on onshore and offshore, and all data recorded showed a high quality and unprecedented in the history of exploration activity in the Libya.
If anyone to double the figures then they should have the proof otherwise is nonsense and you will consequently loose your credibility

Paul Cochrane said...

Please note that Mr Alwan was asked to contribute to an article I wrote on Libya's oil sector but was unavailable for comment. The source quoted in the commentary has been working in Libya for decades and is a world authority.