In 1984 industry, including the exploration, production, transport, and marketing of petroleum products (crude petroleum, natural gas, and condensates derived therefrom), contributed about 60 percent of GDP (at factor cost) and virtually 100 percent of exports. Industrial activities also occupied from 30 to 38 percent of the total labor force in 1984.
Libyan industrial development has been heavily dependent on the oil sector, both for investment revenue and for raw inputs. Throughout the 1970s, the government implemented numerous measures to increase its share of the profits from oil exploitation and marketing. By the mid-1980s, the revenue accruing to foreign oil companies engaged in lifting Libyan oil was taxed at a rate of about 95 percent.
Hydrocarbons and Mining
Since the early 1960s, the petroleum industry has increasingly dominated the whole economy, although in 1984 it provided direct employment for fewer than 10,000 Libyans. The development of the oil industry was remarkable, both in terms of its rapidity and its proliferation. An exceptional combination of circumstances contributed to the development of the petroleum sector. Like Algerian oil, Libyan crude oil, while having a rather high wax content, is lighter and easier to handle than crudes from most other petroleum areas. It also has a low sulfur content, which makes it easier on internal combustion engines and less of a pollution contributant than other crudes. For this reason, Libyan crudes had a receptive market in Europe from the start; furthermore, Libya is one-third closer to European markets than the oil ports of the eastern Mediterranean. When the Suez Canal was closed by the June 1967 War, forcing tankers from Iran, Iraq, and the Arabian Peninsula to go around the Cape of Good Hope, the advantages of Libyan petroleum were enhanced. Moreover, the lay of the land itself, which allows the output of the wells to be piped directly and easily to dockside totally over Libya's territory, assured steadiness of supply, which has not necessarily been the case for eastern Mediterranean pipeline outlets. In addition, Libya's petroleum development benefited from the technology and experience acquired by the industry in other parts of the petroleum world during the preceding fifty years. Thus, by 1977 Libya was the seventh largest oil producer in the world. However, Libya's position declined somewhat in the early 1980s as OPEC production quotas were cut. By 1986 Libya was only the fifteenth largest producer of crude oil.
For the petroleum industry, the military coup of 1969 did not represent a rupture of continuity; it did, however, introduce a shift in government attitudes toward the purpose and function of the foreign operating companies in line with its general nationalist-socialist political and socioeconomic orientation. It is therefore useful to visualize Libya's petroleum development in terms of two periods, dividing at September 1, 1969, with the earlier period serving to prepare for the later.
Active exploration started in 1953 after oil was discovered in neighboring Algeria. The first well was begun in 1956 in western Fezzan, and the first oil was struck in 1957. Esso (subsequently Exxon) made the first commercial strike in 1959, just as several firms were planning to give up exploration. The first oil flowed by pipeline from Esso's concession at Zaltan to its export facilities at Marsa al Burayqah in 1961. The rush was on, with other companies entering Libya and additional discoveries being made. The original major strikes were in the Sirtica Basin, one of the world's largest oil fields, southeast of the Gulf of Sidra; in 1987 this area was still the source of the bulk of Libya's output. In 1969 a major strike was made at Sarir, well to the southeast of the Sirtica Basin fields, and minor fields were located in northwestern Tripolitania. New deposits were found in the Ghadamis sedimentation basin (400 kilometers southwest of Tripoli) in 1974 and in offshore fields 30 kilometers northwest of Tripoli in 1977.
Since 1977 efforts to tap new deposits have concentrated on Libya's offshore fields. The large Bouri field was due to be brought on-stream by the NOC and AGIP (Azienda Generale Italiana Petroli), a subsidiary of the Italian state oil company consortium, in late 1987. Other offshore exploration ventures were launched following the settlement of maritime boundary disputes with Tunisia in 1982 and Malta in 1983. Libyan access to offshore deposits in these formerly disputed areas was significant, because they may contain as much as 7 billion barrels of oil.
Petroleum production in 1985 was still governed by the Petroleum Law of 1955, which was amended in 1961, 1965, and 1971. The government, through the Ministry of Petroleum, preferred to grant sizable concessions to a number of different foreign companies. To induce rapid exploitation of deposits, the typical concession contract called for progressive nationalization of Libyan operations run by foreign companies over a span of ten years, with the Libyan government's share starting as one-fourth and ending at three-fourths. The government extracted most of its compensation in the form of product sharing. When early concessions to several large companies by Esso, which was the first to export Libyan crude in 1961, proved to be highly profitable, many independent oil companies from noncommunist countries set up similar operations in Libya. In 1969 about thrity-three companies held concessions. Concessionary terms were somewhat tightened during the 1970s, as the postrevolutionary government pursued a more active policy of nationalization. The vehicle for this policy was the revamped state NOC, which, as noted, was formed in 1970 from LIPETCO. In July 1970, NOC's jurisdiction was expanded by legislation that nationalized the foreign-owned Esso, Shell, and Ente Nazionale Idrocarbuno (ENI) marketing subsidiaries, and a small local company, Petro Libya, and transferred their operations to NOC. These operations included managing companies in the importing, distributing, and selling of refined petroleum products at subsidized prices in Libya. In 1971 the companies were merged into a single countrywide marketing enterprise called the Brega Company, which also marketed oil and gas abroad for the government.
The new government's nationalization campaign commenced in December 1971, when it nationalized the British Petroleum share of the British Petroleum-Bunker Hunt Sarir field in retaliation for the British government's failure to intervene to prevent Iran from taking possession of three small islands in the Persian Gulf belonging to the United Arab Emirates. It was not until late 1974 that a compensation agreement was reached between British Petroleum and the Libyan government over the settlement of these nationalized assets. In December 1972, Libya moved against British Petroleum's former partner Bunker Hunt and demanded a 50-percent participation in its operations. When Bunker Hunt refused, its assets were nationalized in June 1973 and turned over to one of NOC's subsidiaries, as had been done earlier with British Petroleum's assets.
In late 1972, a 50-percent participation had been agreed upon with the Italian joint company, ENI-AGIP, and in early 1973 talks began with the Occidental Petroleum Corporation and with the Oasis group. Occidental, accounting for about 15 percent of total production, was one of the major independent producers. In July 1973, it agreed to NOC's purchase of 51 percent of its assets. The Oasis group, another major producer, was one-third owned by the Continental Oil Company, one-third by Marathon Petroleum, and one- sixth each by Amerada Petroleum Company and Shell. The Oasis group agreed to Libyan 51-percent participation in August 1973. On September 1, 1973, Libya unilaterally announced that it was taking over 51 percent of the remaining oil companies, except for a few small operators.
Several foreign oil companies balked at the Libyan proposal but soon found that the government's policy was firm: agree to Libyan participation or face nationalization. Shell refused to accept Libyan participation in its share of the Oasis group, and its operations were nationalized in March 1974. A month earlier, three other reluctant oil companies had been nationalized: Texaco, the California Asiatic Company, and the Libyan-American Oil Company. They finally received compensation for their assets in 1977.
Political events of the 1980s convinced many American-owned companies of the advisability of selling off their Libyan operations. In 1981 Exxon withdrew from Libya, pulling out its long-standing subsidiary operations. Mobil followed suit in 1982, when it withdrew from its operations in the Ras al Unuf system. These withdrawals gave NOC an even greater share in the overall oil industry. Another round of advancing nationalization was made possible in 1986, when United States President Ronald Reagan announced on January 7 his intention to require American companies to divest from their operations in Libya. It was unclear at that time, however, whether the five companies involved would sell their shares to NOC (probably at a substantial loss), or merely transfer them to European subsidiaries not affected by the president's sanctions. According to the latest estimates available in early 1987, NOC's share of the total equity in Libyan petroleum operations stood at 70 percent, with two operating subsidiaries and at least a 50-percent share in each major private concession.
Although NOC nominally had been under control of the Ministry of Petroleum, foreign observers were uncertain what real control the ministry had over the NOC. The ministry's dissolution in March 1986 produced little comment, which seemed to indicate that NOC was the principal instrument of government policy in the oil sector and controlled about two-thirds of Libya's total oil production.
Since 1974 no new concessions have been granted, although the Libyan government has negotiated production-sharing agreements with existing concession holders to induce them to search for new deposits, particularly in the offshore region bordering Tunisia where the large Bouri field is located. These agreements have called for NOC to receive 81 percent of production if the discovery is offshore and 85 percent if it is onshore.
Libyan price policy has largely been settled in meetings of OPEC, which it joined in 1962. Both the prerevolutionary and postrevolutionary governments have remained committed to OPEC as an instrument for maximizing their total oil revenues. Petroleum production (almost all of which was exported) declined during the first half of the 1970s, as a result of both the OPEC and Libyan policy of cutting production to influence price. During the late 1970s, production rose slightly, only to fall again in the 1980s when OPEC reduced its members' production quotas in an attempt to halt the oil price slide. In March 1983, Libya accepted its OPEC quota of 1.1 million barrels per day (bpd). This figure was revised downward again in November 1984, when it was set at 990,000 bpd. Libyan oil production in 1986 averaged 1,137 thousand bpd, having regained the same production it had in 1981. Generally, Libya has adhered to its OPEC quota.
In 1986 Libyan oil fields were served by a complicated network of oil pipelines leading to the five principal export terminals at Marsa al Burayqah, As Sidra, Ras al Unuf, Marsa al Hariqah, and Az Zuwaytinah. The Sidra terminal exported the largest volume of oil, about 30 percent of the total in 1981. A future sixth terminal was planned at Zuwarah in western Libya. Pipelines to these terminals served more than one company, thus mixing different oil blends that were standardized for export. The share that an individual company received from exports was determined by the amount and quality or the oil that entered the common pipeline. The share of the oil belonging to NOC was either sold directly on the open market or sold back to its producing partner. Libyan refining capacity increased dramatically in 1985, when the export refinery at Ras al Unuf came on stream with a 220,000-bpd capacity. Other refineries existed at Tobruk (20, 000 bpd), Marsa al Burayqah (11,000 bpd), and Az Zawiyah (116,000 bpd), giving Libya an overall refining capacity in 1985 of 367,000 bdp.
Production of natural gas in Libya received a major boost in 1971, when a law was passed requiring the oil companies to store and liquify the natural gas condensate from their wells, rather than burning it off as many had previously done. However, natural gas production has lagged far behind oil because the high costs of transport and liquefaction have made it a less attractive alternative. A large liquefaction plant was built at Marsa al Burayqah in 1968, but its export performance has been spotty. About 70 percent of Libya's natural gas production is consumed domestically. Production stood at 12.35 billion cubic meters in 1984, down from 20.38 billion cubic meters in 1980. Total reserves of natural gas were estimated at 600 billion cubic meters in 1985.
According to information available in 1987, Libya's commercially usable mineral resources--apart from its hydrocarbons- -were limited to a large iron-ore deposit in the Wadi ash Shati near Sabha in Fezzan, and scattered, deposits of gypsum, limestone, cement rock, salt, and building stone. There also were small, widely scattered and currently noncommercial deposits of phosphate rock, manganese, barite-celestite, sodium carbonate, sulfur, and alum. Although much of the country had been photographed by the petroleum companies and large portions of it had been mapped by the Italians, by British and American military personnel, and by the United States Geological Survey (from 1954 to 1962) in search of water and minerals, the country is so large that in early 1987 much of it still had not been mapped at scales suitable for definitive mineral inventory.
The Wadi ash Shati iron-ore deposit is apparently one of the largest in the world. Suitable in considerable part for strip mining, it outcrops in or underlies roughly eighty square kilometers of the valley. According to information in the mid- 1980s, none of it was high-grade ore. Preliminary estimates suggest that the amount of 30 to 40 percent iron-content ore in the deposits totals anywhere between 700 million and 2 billion tons. Because of the distances and technical problems involved, profitable exploitation of the deposits would depend on the construction of a proposed railroad to the coast. Development of the deposits would allow Libya self-sufficiency in iron and steel, although probably at costs appreciably above those available on an import basis. In 1974 a state-owned company, the General Iron and Steel Corporation, was formed to exploit the deposits. The government hoped that the planned iron and steel manufacturing plant at Misratah, scheduled for completion in 1986, eventually would be able to exploit the Wadi ash Shati deposits. But the commercial viability of using these deposits was not assumed, since initial plans called for the Misratah works to be fed with imported iron-ore pellets.
Other scattered iron ore deposits in northwestern Tripolitania and northern Fezzan were apparently insufficient to be commercially exploitable under current conditions. Manganese was known to occur in northwestern Tripolitania and, in combination with the iron-ore deposits, at several locations in the Wadi ash Shati. Known deposits, however, were not considered commercially exploitable.
Salt flats, formed by evaporation at lagoonal deposits near the coast and in closed depressions in the desert interior, are widely scattered through the northern part of the country. In some cases, especially along the Gulf of Sidra, they cover large areas. In the 1980s, about 11,000 tons of salt were produced annually. Evidences of sulfur have been reported at scattered points in the salt flats of the Sirtica Basin and in various parts of Fezzan; sulfur occurs in pure form in Fezzan and is associated with sulfur springs in the Sirtica Basin.
Sodium carbonate (trona) is formed as a crust at the edges and bottoms of a number of dry lakes in Fezzan. Traditionally, about 100 metric tons a year were harvested and sent to market at Sabha. Because sodium carbonate is used in petroleum refining, as well as traditionally in soapmaking and water refining, production may be increased as part of the government's development effort in Fezzan.
Because of the government's interest in social welfare and its financial ability to support it, construction is bound to be a major area of future economic development. Except for wood, the raw materials needed for construction--stone, gravel, clay, limestone, gypsum, and cheap fuel--are found in abundant quantities and suitable commercial qualities adjacent to the major population and production centers in both northern Tripolitania and Cyrenaica. In 1986 plans were announced for a new gypsum mine with a planned output of 200,000 to 300,000 tons a year. Several thousand tons of gypsum are mined annually and indicated reserves of gypsum total about 200 million tons.
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