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Bloomberg: Gazprom, Shell Lead Winners of Libyan Gas Permits (Update1)

By Maher Chmaytelli

Dec. 9 (Bloomberg) — Libya, the holder of Africa’s largest oil reserves, gave OAO Gazprom and Royal Dutch Shell Plc permits to explore for natural gas, as the North African nation seeks to increase fuel exports to Europe to meet rising demand.

Libya auctioned today in Tripoli exploration permits in the central, western and southern desert, in its first licensing round in potentially gas-rich areas. Russia’s state-run natural gas exporter Gazprom joined Shell, Europe’s largest oil company, Algeria’s Sonatrach and Polskie Gornictwo Naftowe i Gazownictwo SA of Poland in winning four of 12 licenses on offer.

Six licenses, five of which were offshore and one in southern Libya, didn’t find any bidders. Occidental Petroleum Corp. and RWE AG were the sole bidders for the other two and Libya’s state-run oil company will decide in a week whether to hand them over.

“Libya is of particular interest since it is close geographically and under-unexplored for gas,” said Bill Farren- Price, energy director at Medley Global Advisors in London. “Russia will not have the sort of political control we see them exerting with their pipeline supplies into Europe.”

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 and Italy shun nuclear and coal-fired power plants because of safety and pollution concerns.

Drive to Control

At the same time, Russian President Vladimir Putin’s drive to control the energy industry is causing concern in Europe about the security of Russian gas which accounts for a quarter of the continent’s consumption. Deliveries of Russian oil and gas to Europe have been disrupted twice since January 2006, amid pricing disputes between Russia and pipeline transit countries Ukraine and Belarus.

“Its pure business, nobody needs to worry,” said Victor Gogitidze, managing director of Gazprom in Libya, when asked whether Europe should be concerned that the Russian company is expanding in Libya, having won a previous permit a year ago.

The winners agreed to pay a minimum bonus of $10 million when they sign the contract. Libya’s National Oil Corp., which ran the auction, chose the companies that would give it the highest share of production from any field they find.

Gazprom, which offered to give National Oil 90.2 percent of any production, beat off competition from Gaz de France SA, the U.K.’s BG Group Plc, and OAO Lukoil for a license to explore in western Libya. Shell, with 85 percent, fended off bids from Total SA and Petro-Canada to search for gas in central Libya.

Sonatrach teamed up with Indian Oil Corp. and Oil India Ltd. for its winning bid. Polskie Gornictwo, Poland’s gas monopoly, beat off Gaz De France for exploration rights in the south west.

Sanctions Lifted

“The gas industry is more capital intensive than the oil industry; Libya should have given better fiscal terms for gas exploration bidders” so it could sell all the permits, Medley’s Farren-Price said.

Libya, a nation bigger in size than Alaska, became a focus of energy companies after the gradual lifting in 2004 of two decades of U.S. sanctions. A year earlier, the regime of Muammar al-Qaddafi, Libya’s leader since 1969, agreed to pay compensation to relatives of those killed in the 1988 bombing of a PanAm airplane over Lockerbie, Scotland, and gave up plans to build weapons of mass destruction.

Occidental, 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 lifting of the sanctions in potentially oil-rich areas, committing them to spend at least $2 billion on exploration.

Granted Rights

National Oil awarded gas-exploration rights to Shell 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.

In today’s auction, Libya gave exploration rights in plots ranging in size from 1,790 square kilometers (690 square miles) to 10,300 square kilometers. The twelve permits on offer initially covered a total of 72,500 square kilometers, about the same area as the Republic of Ireland.

Libya, a member of the Organization of Petroleum Exporting Countries, produced about 1.7 million barrels of oil a day last month, or about 17 percent less than Nigeria, Africa’s largest producer of the fuel, according to Bloomberg estimates.

New Markets

Libya’s 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 and the rest is consumed locally.

Finding more gas may enable Libya to build a second LNG export plant and send more gas by tanker to distant markets such as the U.K. or the U.S.

Companies winning drilling rights will have to share the production of any find with Libya’s government. BP’s agreement in May gives Libya a 78 percent stake in any field found, BP 19 percent and the state-owned Libya Investment Corp. 3 percent.

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

Last Updated: December 9, 2007 14:10 EST

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