INTERVIEW: Libya eyes new gas drilling with key partner Eni, minister says

Libya needs to double its gas production to meet domestic demand but hopes within five years to expand output enough to become a significant exporter to current customer Italy and further afield in Europe, oil minister Mohamed Oun told S&P Global Commodity Insights.

To that end, state-owned National Oil Corp. is in talks with Italy's Eni to develop the onshore Al-Hamada gas field, said Oun in two brief interviews July 5-6 on the sidelines of the OPEC International Seminar in Vienna.

"We still power a lot of power stations with liquid fuel, which we import actually, so we would like to increase the gas production as well, and that's why the agreement was signed with Eni to develop the official structures and they are discussing now to develop one of the gas fields in Al-Hamada," Oun said.

The rebuilding but politically fractured country is currently feeding about 2 Bcf/d of gas to its power stations, but needs "at least 4 Bcf/d" to satisfy domestic electricity demand, he said.

Currently, Eni produces gas at the Wafa and Bahr Essalam fields operated by Mellitah Oil & Gas, a joint venture with NOC. Gas from the fields is then brought to Italy through the 520 km (323 miles) Green Stream pipeline from the Mellitah treater on Libya's coast to the city of Gela in Sicily.

The capacity of the pipeline is about 8 Bcm/year.

"We still export some gas to Italy, but not the quantity that we would like that can make a difference to Europe," Oun said. "It will take us some years. We have a lot of gas discoveries, but they are not developed, and once we develop them, perhaps in five years, I would expect, if we work hard, we will be in a position to export more gas."

Libya's gas exports to Italy have averaged around 7 million cu m/d since the start of 2023, according to S&P Global Commodity Insights data, well below capacity.

NOC wants to develop the Al-Hamada oil and gas fields in two phases to produce 25,000 b/d and then 250 MMcf/d of gas, the company said in an April 2022 statement.

The field, which lies 500 km west of Tripoli in the Ghadames Basin, will pump oil in the first phase to NOC-owned Arabian Gulf Co. and then to the Zawiya refinery, the company said at the time.

After oil is consumed in a period not exceeding two years, the second phase should begin with producing gas that will treated at the field and then transported by the Wafa-Mellitah gas pipeline, NOC added.

Eni could not be reached for comment.

The Italian major in January signed a 25-year agreement with NOC to develop offshore Structures A and E, which have confirmed gas reserves of about 6 Tcf. The agreement, the largest such energy deal for Libya in more than a quarter of a century, included investments of $8 billion to be split equally between the two companies.

In 2022, Eni produced 207 Bcf of gas in Libya, up by 4.5% from 2021 levels, according to the company's website.

Oil blockade threats

Besides boosting its gas output, NOC is keen to ramp up oil production capacity of the OPEC member to 2 million b/d in three to five years, up from about 1.25 million b/d now.

NOC has set up a strategic office to help draft a plan that would include projects to hit the 2 million b/d target, one of the top priorities for chairman Farhat Bengdara.

However, Khalifa Haftar, the head of the self-styled Libyan National Army, who wields power in the oil-rich east, has threatened to use force to implement "fair" distribution of oil wealth, including potentially blockading key ports.

Oun said he is concerned "to a certain extent" about the threats impacting the country's 1.2 million b/d production.

"I hope that the Libyans will realize that this is not in the best interest for all Libyans so they may abandon this idea," he said.

But he said he has not been party to any discussions between the Tripoli-based Government of National Unity, to which he belongs, and the LNA.

The LNA orchestrated an oil blockade on fields and ports in summer 2022, prompting NOC to declare force majeure for exports. The blockade, which was lifted in July following Bengdara's appointment, pushed crude oil production to a near two-year low of 650,000 b/d in June 2022, according to the Platts survey of OPEC+ output by S&P Global Commodity Insights.

Libya, which is exempt from OPEC+ quotas, pumped 1.15 million b/d in May, according to the latest Platts survey.

Libya may be able to raise its crude production capacity to 1.4 million-1.5 million b/d in 2024 as part of plans to hit 2 million b/d in the medium-term, Oun added.

"Our aim is actually to reach 2 million b/d, but this is a strategic project that NOC is working on, it will take time of course," he said. "But they are working hard to work over some wells and produce some small structures."