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Bloomberg: Libya to Auction Gas Permits, Boost Supply to Europe (Update2)

By Maher Chmaytelli

July 4 (Bloomberg) — Libya, the holder of Africa’s largest oil reserves, will stage its first auction of natural-gas exploration rights in December, as the nation seeks to increase its sales of the fuel to Europe, the state-run oil company’s chairman said.

Libya will announce “in the next few days” the exact location of plots of land where 12 drilling permits will be offered to foreign companies, Chairman Shokri Ghanem of National Oil Corp. said by telephone late yesterday from Tripoli. The licenses to explore will be awarded in an auction in early December in which companies will bid openly, he said.

The North African nation has until now focused on increasing its oil production, to make up for two decades of U.S. and international sanctions that damaged its industry and reduced its revenue. It seeks now to raise its gas output as Europe demands more of the fuel to ease its dependence on Russia.

“We have the potential of becoming a major player in the natural-gas industry,” said Ghanem, 65, who was previously prime minister. Less than a third of Libya’s territory is covered under petroleum accords with oil companies, according to National Oil. The mostly desert nation is bigger than Alaska.

Exploration rights will be offered in “gas-prone areas” offshore in the Gulf of Sirte, and onshore in the western region of Ghadames, near the border with Algeria, and the southern region of Murzuq, said Ghanem. Each permit will cover an area of 2,000 square kilometers (770 square miles) to 10,000 square kilometers, he said.

Sanctions Lifted

Occidental Petroleum Corp., Exxon Mobil Corp. and Chevron Corp. are among 40 companies that have won drilling rights in three auctions held by the Libyan government since the U.S. sanctions were lifted three years ago, committing to spend at least $2 billion on exploration.

The new plots to be offered are located in areas already producing oil and gas, developed by Italy’s Eni SpA and Spain’s Repsol YPF SA.

“There will be significant interest, especially from European companies, because of Europe’s drive to diversify its gas supply and its proximity to Libya,” said Francis Perrin, an analyst at the Paris-based Arab Petroleum Research Center.

Libya’s relations with the U.S. and the U.K. warmed after Muammar Qaddafi’s regime agreed to pay compensation to the families of 270 people killed in the 1988 airplane bombing over Lockerbie, Scotland, and to abandon plans to build weapons of mass destruction.

BG Considers Bid

U.S. President George W. Bush’s administration restored full diplomatic relations with Libya last year and removed it from a list of states that sponsor terrorism. National Oil awarded gas- exploration rights to Royal Dutch Shell Plc in 2005. BP Plc was granted rights on May 29, during a visit to Libya by the U.K.’s then-Prime Minister Tony Blair.

Bidding for exploration in the country “is certainly something which we would consider,” Trina Fahey, a spokeswoman for BG Group Plc, the U.K.’s third-largest gas producer, said in an e-mail.

Libya, a member of the Organization of Petroleum Exporting Countries, has an estimated oil output of 1.69 million barrels a day, according to Bloomberg data. That’s 16 percent less than Nigeria, Africa’s largest producer of the fuel, because of the lingering effects of sanctions.

Gas Reserves

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

Finding more gas may enable Libya to build a second plant for liquefied natural gas and send more gas by tanker to markets less accessible by pipelines, such as the U.K. or the U.S.

Gas consumption in Europe, the second-largest market for the fuel, behind the U.S., has grown by 10 percent in the last five years, as nations like Spain have shunned nuclear and coal- fired power plants.

The European Union wants to increase its imports of gas from North Africa and the Caspian Sea region to reduce dependence on Russia’s state-controlled OAO Gazprom, which currently supplies a quarter of its needs.

Companies winning drilling rights will have to share the production of any discovery with the Libyan government, said Ghanem.

Government Stakes

The agreement signed in May with BP gives the Libyan government a 78 percent stake in any field found, BP 19 percent and the state-owned Libya Investment Corp. 3 percent. BP committed to spend at least $900 million on exploration in plots that cover a total of 54,000 square kilometers in the Gulf of Sirte and Ghadames.

“The companies that will bid in the gas auction are going to study the BP agreement closely and measure their offers in part accordingly,” said analyst Perrin. “ They will be working in the same area as BP.”

To contact the reporter on this story: Maher Chmaytelli in Cyprus, at [email protected] .

Last Updated: July 4, 2007 08:09 EDT

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