Watching Libya March 16, 2011

The Libyan opposition continues to be pushed back towards Benghazi, seat of its National Council, as the UN Security Council continues to deliberate on the Arab League's demand for a No-Fly Zone. Meanwhile, international companies with long term contracts with Libyan state owned entities consider various scenarios for the future. In an editorial of yesterday, Tuesday, March 15, the Financial Times argued that "fighter cover will avail the rebels little if Col Gaddafi takes advantage of the balance of forces to defeat them on the ground" ( http://www.ft.com/cms/s/0/07eb588a-4f49-11e0-9038-00144feab49a.html#axzz1GlPLlYpF ).

Meanwhile, there are conflicting reports regarding rebel resistance in other parts of the country. It is unclear, for example, what the situation is in the string of towns and villages stretching from Gharyan to Nalut in the Nafusa Mountains (Al Jabal al Gharbi and Nalut districts). Both Gharyan (about 115 km south of Tripoli, population 85,300) and Nalut (about 240 km south west of Tripoli, population 26,000) were reported to have been seized by the rebels earlier on in the uprising. This is an area of strategic significance inasmuch as important pipelines, such as that linking the Wafa gas field 520 km south west of Tripoli adjacent to the Algerian border, to Melitah on the coast, pass through it.

Most of Libya's gas exports go from Melitah via the Greenstream underwater pipeline to Italy. Greenstream was shut off on February 22 because of the outbreak of the rebellion. Italy's ENI could actually benefit from the situation by avoiding to pay for unwanted Russian gas, provided Libyan gas supplies to Italy are interrupted for long enough, according to Société Générale as reported by Reuters.

In sharp contrast with the gas crisis of 2009, when the supply of Russian gas was interrupted because of problems between Russia and the Ukraine, this time ENI can make up for interrupted Libyan supplies by taking delivery of Russian gas, which gas it would have to pay for anyway under take-or-pay (ToP) contractual obligations with Russia's Gazprom.

ENI confirmed today Wednesday, March 16, that it has stopped oil production in Libya but was producing for Libya's domestic and power generation use. Last Monday, March, 14, the International Energy Agency (IEA) reported that Libyan oil production, normally around 1.6 billion of barrels a day (bbl/d). had practically ceased. In 2009, ENI produced around 244,000 bbl/ net in Libya. ENI's CEO Paolo Scaroni, speaking today on the sidelines of a parliamentary hearing in Rome, is reported  to have said that its contractual relationship with Libya's National Oil Company (NOC) would survive any outcome of the crisis.

The Melitah plant is supplied with gas from the desert Wafa field (see our map below) and from the offshore Bahr Essalam field, 110 kilometres north of Tripoli. The Greenstream 32-inch pipeline connects Melitah and Gela in Sicily, a distance of 518 km. Greenstream is a joint venture between Agip Gas and NOC. Greenstream is almost certainly the longest underwater pipeline in the Mediterranean Sea. It is part of the Western Libyan Gas Project, which includes the Melitah compressor station on the Libyan coast, the underwater gas pipeline, and the reception terminal at Gela, in Sicily.

Greenstream has a capacity of 11 billion cubic metres (Gm³) per year. The gas treatment plant at Melitah is estimated to have cost over $ 700 million. Stretches of the pipeline are located in water depths exceeding 1,100 m. Currently Libya supplies around 10 per cent of Italy’s gas needs.

Libya's proven natural gas reserves as at January 1, 2011 were estimated at 54.7 trillion cubic feet (Tcf) according to Oil and Gas Journal. Recent new discoveries and investments in natural gas exploration are expected to increase these estimates. Libya planned to boost production of natural gas in order to free up more oil for export and, at the same time, maintaining and expanding exports. 

Libya produced 1,034 billion cubic feet (Bcf) of gross natural gas in 2009, according to the US Energy Information Administration, EIA. Natural gas accounts for 45 % of generated electricity. Project delays and the limitations of infrastructure, however, have kept consumption stable over the past decade. According to estimates by the International Energy Agency, IEA, published prior to the outbreak of the rebellion, domestic consumption could increase by as much as 50 percent by 2012 if planned pipelines and generating capacity come on stream.

Exports of natural gas to Europe stood at 349 Bcf in 2009. In the same year, Libya consumed 212 Bcf. The bulk of exported gas went out by pipeline. A small amount was exported as liquefied natural gas (LNG).

Libya's LNG exports have been disappointing. The Brega LNG plant was installed in the 1960s with a nameplate capacity of 125 Bcf per year. US sanctions blocked the importation of technology to separate out LPG from the natural gas. This caused output to fail to exceed less than half of capacity. In 2009, exports stood at 24.4 Bcf, all of which went to Spain.

Regarding the strategic implications of the location of the oil fields of the Sirte basin, see Watching Libya March 11, 2011 below.