Under the agreement, Shell will also invest an initial $105 million to upgrade the Marsa el-Brega plant - rising possibly to $450 million - to increase output to 3.2 million tonnes a year (t/y) from 700,000 t/y. Subject to gas availability Shell will also undertake to develop a new LNG facility.

Negotiations for the deal began some years ago, before the introduction of the EPSA-4 contract model, and were based on the older EPSA-3 model. However, sources in Tripoli say that the terms of the agreement were amended to bring them in line with the EPSA-4 conditions. The deal underlines the priority Tripoli is placing on developing its untapped natural gas reserves.

Reserves

Libya's proven natural gas reserves of about 52.6 trillion cubic feet (tcf) represent about 0.8 per cent of global reserves. In 2004, natural gas production stood at 7,000 million cubic metres, up by more than 9 per cent on the previous year, but still a mere 0.3 per cent of global production. The country's unproven reserves are estimated to be as much as double the proven reserves.

'Investment in gas is one of NOC's highest priorities,' says a Tripoli-based oil executive. 'It is a relatively new sector to Libya and the only major development has been the Western Libyan Gas Project being carried out by Italy's Eni [to deliver gas to Italy through a subsea pipeline]. But Tripoli needs a lot more gas to meet its plans to convert its power stations and to increase its gas exports. Gas, remember, is not subject to OPEC constraints.'