Export revenue could have been even higher, but for years the country's output and production capacity has been constrained by the impact of US-imposed sanctions. The embargo has prevented the local oil industry, run by the National Oil Corporation (NOC), from bringing in much-needed equipment to enhance or simply maintain output at mature fields. It has also meant the US oil firms with assets in Libya - ConocoPhillips, Marathon Oil Company and Amerada Hess, together forming the Oasis Group, and Occidental Petroleum - have been unable to return to their concessions since 1986.

The American absence, combined with inexpensive recovery rates of high-quality crude oil, has made Libya an extremely attractive prospect for non-US oil companies. As a result, European firms in particular have been quick to seek a foothold in the hydrocarbons sector since the suspension of UN sanctions in 1999.

Their eagerness has been welcomed in Tripoli, where there is a growing recognition of the need to harness overseas investment and technology if capacity and output targets are to be met. NOC, which with its subsidiaries accounts for over half the country's oil output, intends to increase total capacity by just under 50 per cent to 2.6 million barrels a day (b/d) in the next few years. This will require an estimated $6,000 million in investment in exploration and production. But although NOC is strong on the rhetoric of bringing in foreign companies, the practical implementation of the policy has, initially at least, been less evident.

For almost three years, the 137 blocks that NOC offered in a May 2000 licensing round remained unassigned, leading some in the industry to conclude the move was intended to provide ammunition for US oil companies lobbying their government for a lifting of the sanctions.

However, as negotiations over Lockerbie neared conclusion, NOC announced in May 2003 that the first package of blocks had been awarded to a consortium of Spain's Repsol YPF and Austria's OMV. Under the terms of the deal the two firms, both of which are already active in Libya, will spend an estimated total of $90 million in exploring the six-block package, which includes acreage in the oil-rich Murzuq, Sirte and Kufra basins. Soon afterwards, Germany's RWE-Dea, a newcomer to Libya, signed an agreement with NOC to invest $57 million in a five-year exploration programme for a further six blocks.

Oil companies from further afield have also been maintaining a steady pressure on NOC in an effort to break into the lucrative Libyan market. After several years of sustained effort, India's ONCG Videsh in July finally received approval for a farm-in deal on two exploration blocks signed last August with Turkish Petroleum Overseas Company. Ukranian energy company Naftohaz Ukrayiny is also understood to be in discussions about participating in an exploration and development programme reported to cost about $300 million.

Surging supplies

In addition to increased activity on the exploration front, Libya is also preparing itself for an upsurge in output as a series of developments come on stream in the coming year. But foreign investors' enthusiasm for the new production has been tempered by past experience. Not only have many foreign producers in Libya already had to implement pro-rata output cuts to enable Libya to comply with its OPEC quota, they have also had to struggle against bureaucratic foot-dragging on new projects.

Italy's Eni has been one of the worst affected, with the proposed peak production of the 150,000-b/d Elephant field development pushed back to 2006. Initial start-up of 50,000 b/d from the scheme is set for late 2003. Others too have suffered setbacks in new developments. France's Total had initially planned to tender the expansion to its 18,000-b/d Mabruk field back in 2002, but only received approval to go ahead with the project earlier this year. Production from NC 137 is expected to start up later this year.

Petro-Canada is on the way to reaching peak production of 24,000 b/d at the El-Naga field, having produced its first oil in the first quarter of 2003. The Canadian company is also in discussions with NOC to boost production at the Amal field, where reserves are estimated at about 6,000 million barrels. Further down the road, two Repsol-operated blocks, NC 186 and NC 190, are expected to peak at a combined output of 90,000 b/d.

As Libya's oil output rises step by faltering step, Tripoli is paying increasing attention to its gas-producing capabilities. Keen to replicate the success of its neighbour Algeria, Libya is hungrily eyeing Europe as the main market for its gas resources. Proven reserves total 47 trillion cubic feet, but that figure could rise significantly, given that less than 70 per cent of the country has been explored. At the same time, Libya is seeking to convert domestic oil-fired power plants to gas-driven units, to free up more oil for export.

To date, the mainstay of the country's gas development plans is the $5,600 million Western Libya Gas Project. The 50:50 joint venture between NOC and Eni aims eventually to transport 8,000 million cubic metres a year (cm/y) to Europe. Italy's Edison Gas has signed up to take half the supplies once the massive project starts up at the end of 2004; Gaz de France and Energia Gas will take 2,000 million cm/y each.

Work on the multi-phased project is progressing well. NOC/Eni has awarded all but one of the main components - which include the development of both offshore and onshore blocks, pumping stations, gas processing facilities and national and international pipelines - in preparation for first gas to flow through the 540-kilometre subsea pipeline to Italy. There's still a long way to go, but Libya is aiming high.