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Bloomberg: Blair Sees `Huge’ Opportunity in Libya as BP Returns (Update5)

By Kitty Donaldson and Robert Hutton

May 29 (Bloomberg) — Prime Minister Tony Blair, announcing a $900 million contract returning BP Plc to Libya after more than three decades, said British companies will reap “huge” new contracts there because leader Muammar Qaddafi has joined the fight against terrorism.

“The relationship between Britain and Libya has been completely transformed,” Blair said after meeting Qaddafi in Sirte in central Libya today. “We now have very strong cooperation on counterterrorism and defense and the commercial relationship that you can see by this huge investment.”

Britain and the U.S. have worked to rehabilitate Libya’s trade links after 20 years of economic sanctions prompted Qaddafi to curtail his ambitions for a nuclear weapon in 2002. With pressure building on Iran to abandon its own nuclear program, Blair, planning to retire on June 27, wants to draw attention to his effort to maneuver Libya away from antagonism.

“Libya has been persuadable, by setting clear standards for what constituted unacceptable behavior, by taking Libya’s legitimate interests and views into account and with the right blend of penalties and inducements,” said Richard Dalton, who served as U.K. ambassador to Libya from 1999 to 2002. “It’s harder for the Iranians to turn themselves around.”

Africa Tour

Blair, on a five-day tour through Africa, is anxious highlight foreign policy successes and made Libya his first stop today. He last visited in 2004, announcing the return of the BP’s smaller rival, Royal Dutch Shell Group Plc. Exxon Mobil Corp. and Occidental Petroleum Co., which like BP were forced out of Libya in 1974, also have returned.

Blair and U.S. President George W. Bush lifted sanctions after Qaddafi agreed to pay compensation to the families of 270 people killed in the 1988 bombing of Pan Am flight 103 over Lockerbie, Scotland, and to give up plans to build nuclear bombs. Last year, the U.S. restored full diplomatic relations with Libya and removed it from a list of state that sponsor terrorism.

“It’s a success story for him and Bush,” said Saad Djebbar, an expert on Libya formerly at Chatham House in London, said in an interview from Qatar. “They brought him back into the fold and are dealing with him reasonably well as a partner. They want it to be a monument to their achievements.”

Libya’s Need

Libya, with the biggest oil reserves in Africa, produces 21 percent less oil than Nigeria because of the lingering effects of sanctions imposed because of the nation’s support for terrorism.

Blair touched down earlier today in Tripoli then flew to meet Qaddafi this tonight in Sirte, an oil-rich region of Libya’s desert. The two will dine together this evening before Blair continues on his African tour.

BP Plc, the U.K.’s largest oil company, may spend $900 million exploring for oil and gas in Libya, according to the North African nation’s top oil official Shokri Ghanem.

“The document that we’re discussing provides for BP to commit $900 million on petroleum exploration, in offshore and onshore areas,” Ghanem said in a telephone interview from Tripoli. “They will have to drill 17 wells in total.”

Later this week, Blair will travel to Sierra Leone and South Africa, touching on Britain’s efforts to alleviate poverty and disease in Africa by boosting aid and trade to the region. Blair is pressing the Group of Eight nations, who meet in Germany in June, to step up their own efforts in the region.

Pressure on the Rich

“Blair pushed Africa up the international agenda in 2005, yet he didn’t really manage to bring the rich countries along with him,” said Max Lawson, Africa policy adviser at Oxfam, Britain’s biggest distributor of foreign aid. “They all made promises, but they haven’t delivered.”

Blair said Libya has been cooperating with Western nations in fighting terrorism and that the two governments would make announcements about joint anti-terrorism plans soon. He will hold a press conference in Libya later today. He said he had an easy personal relationship with Qaddafi.

“I find him very easy to deal with,” Blair told reporters traveling with him to Libya today. “I find the relationship on a personal level with him a very easy one. Libya was treated as an outcast in the international community. The fact is, we need Libya’s help now. There are fantastic huge new commercial opportunities.”

Oil Supplies

For Libya, today’s announcement may further bolster its petroleum output and its reputation as a sound place for Western companies to do business. Since the U.S. lifted sanctions in 2004, 45 foreign companies including Shell and Exxon have piled into projects there.

Libya currently produces about 1.68 million barrels of oil a day, up from 1.26 million barrels a day at the beginning of 2002. In February, the nation said it was looking for more foreign companies to drill 300 untapped oil fields.

BP to date has failed to win rights to explore for oil during bidding contests Libya held. The company operated in the Sirte Basin in the southeast of Libya from the 1950s until Qaddafi seized foreign oil assets in 1974.

“We’ve been in talks with Libya since we signed a memorandum of understanding with them at the end of 2005,” Robert Wine, a spokesman for BP in London, said today. “We’re looking at opportunities for natural gas exploration and production and are hopeful of reaching an agreement soon.”

Gas Ambition

An agreement to tap gas may help Libya build its exports of the commodity in its liquid form and help Britain diversify its energy sources. The U.K. must replace a third of its electric power plants in the next two decades as aging coal and nuclear stations retire from service.

Libya’s gas reserves of 52 trillion cubic feet are the fourth-largest in Africa, after Nigeria, Algeria and Egypt, according to BP. It produces about 12 billion cubic meters of gas a year, 8 billion of which are exported to Italy by a sub-sea pipeline opened in 2004. Less than 1 billion are liquefied and sent to Spain on tankers. The rest is consumed locally.

Finding more gas may allow BP or Royal Dutch Shell Plc to build a new plant for liquefied natural gas. LNG is gas cooled to a liquid so it can be shipped by tankers to places not linked by pipelines.

In 2005, Libya selected Shell as a partner to refurbish its LNG plant in Marsa Al-Brega, in the center of the country, and to increase its output from 700,000 tons a year to 3.2 million tons a year by 2010. Shell, which will spend as much as $450 million on the project, said the contract also provided the possibility of another LNG plant if enough gas was found.

To contact the reporter on this story: Kitty Donaldson in Sirte, Libya, at [email protected] .

Last Updated: May 29, 2007 13:26 EDT

 

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