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Why Libya’s ‘sweet’ crude oil is not enough to tempt BP or Shell

Libya is now producing 1.5m barrels of high-quality oil a day. But with exploration by BP and Shell so far disappointing, British involvement in the country remains slow

: The Observer,

A decade ago Libya was at the centre of dramatic stories alleging cloak-and-dagger diplomacy between then-BP boss Lord Browne, Colonel Gaddafi and MI6 agents. And barely 12 months ago British warplanes were in action over Tripoli – this time fighting to topple the North African dictator former prime minister Tony Blair had previously decided to embrace.

But if these two events were seen by critics as the UK manoeuvring for an “oil boom” that would benefit both countries and an energy-hungry Blighty economy, it must be deemed a bit of a failure.

Libya is indeed once again pumping out 1.5m barrels a day of very high-quality crude, a small amount of which is no doubt coming to UK refineries, but neither BP nor Shell is playing any role in that output.

In fact it is American, Italian and even German companies that have been brought in by the new government in Tripoli to help it get back to business in double-quick time.

Libya has an estimated 47bn barrels of proven oil reserves and while that looks small compared with, say, Saudi Arabia’s 265bn, it is a lot more than Britain can lay claim to (less than 3bn).

The light “sweet” crude from Libya is not only very high quality, it can also easily be extracted from shallow wells in desert areas at a cost that some put as low as $2 a barrel – not bad if you can sell for $114 on the global market.

Five years ago, BP finally signed a Libyan deal worth $900m – its first in the country since Gaddafi nationalised all petroleum operations and threw out western businesses in 1974.

But the exploration explosion by BP, Shell and others who subsequently re-entered the country never properly got under way: the Arab spring brought operations in Libya to a chaotic standstill 18 months ago.

BP had 40 expatriate staffers in Libya before the civil war and as yet none has returned full-time. The 100 staff that had been taken on pre-2011 were kept on the payroll, even when they were unable, due to the unrest, to enter their offices.

Now the odd BP expat is back making visits to Libya and there are hopes that exploration efforts in the Libyan desert and offshore in the Sirte Basin can restart. While the company says it is optimistic about general prospects, its attitude towards Libya is much less urgent than to the Gulf of Mexico or even Egypt.

Shell signed a similar exploration deal in 2008, with a commitment to upgrade and modernise the Marsa al-Brega liquefied natural gas terminal south of Benghazi. But last May it suspended drilling and abandoned exploration in two blocks, citing disappointing results. Shell insists it is keeping an office in Libya and will continue to consider other opportunities but its retreat went down badly with the country’s National Oil Corporation.

ConocoPhillips of the US, Eni of Italy and Wintershall of Germany are all still plugging away with Libyan oil producers, and energy consultancy Wood Mackenzie believes prospects are good – for oil, but also for much cleaner gas.

The oil business is a fickle one, with Kurdistan and the Arctic current flavours of the month for the oil giants. Despite Libya’s credentials as a proven petroleum “province” close to European markets, in the absence of a major new discovery this oil-rich desert country remains out in the cold.


Percentage of Opec’s proven crude reserves by member state, end 2010

Venezuela 24.8%

Saudi Arabia 22.2%

Iran 12.7%

Iraq 12.0%

Kuwait 8.5%

UAE 8.2%

Libya 3.9%

Nigeria 3.1%

Qatar 2.1%

Algeria 1.0%

Angola 0.8%

Ecuador 0.6%

Source: Opec Bulletin 2010/2011


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