- The Washington Times - Wednesday, May 17, 2006

TRIPOLI, Libya — With the last vestiges of U.S. sanctions swept away, Col. Moammar Gadhafi’s bid to bring Libya back into the diplomatic mainstream has scored a stunning success. Col. Gadhafi’s next goal: an economic revival funded by the doubling of oil production in the coming decade.

High-tech U.S. oil-extraction methods should help, as will geography: Libya, on the North African coast, should be immune from disruptions that could snarl the flow of oil from the Persian Gulf.

Analysts describe Libya as a country with a bright future, whose emergence from diplomatic isolation is balm to an oil-thirsty world.

“Libya and Gadhafi are making all the right moves,” said Dalton Garis, an American oil economist at the Petroleum Institute in Abu Dhabi, United Arab Emirates. “The Libyans have done a lot to normalize things, more than anyone would’ve expected.”

Libya is also one of the few countries with huge oil reserves that is actively encouraging foreign companies — especially American firms — to explore and produce oil. In Bolivia and Venezuela, leaders have joined big oil states such as Saudi Arabia, Iran and Kuwait in reining in foreign oil companies — or booting them out.

“It’s a rare opportunity,” said Julius Walker with PVM Oil Associates in Vienna, Austria. “There are very few countries with huge reserves like this, where it’s easy to get in. That’s why there’s so much interest.”

Libya’s light sweet crude is ideal for refining into gasoline, and its oil fields are far closer to U.S. and European markets than those in the Gulf, where the Straits of Hormuz — a choke point between Iran and Oman — could be blocked in the event of war.

On Monday, the Bush administration put Libya back in the game by announcing the restoration of diplomatic relations and Libya’s removal from a U.S. list of state sponsors of terrorism. The move is under conmixed reactions to normalized ties with Washington. Abdul-Hakim al-Keeb, who owns an import-export company in Tripoli, said he looked forward to doing business with Americans.

“What’s important for us is that travel to the United States becomes easier,” he said.

Others said Washington has the most to gain.

“I don’t trust America,” said Al-Hadi al-Maqouz, a merchant. “We’ve done without the United States for a long time, and we didn’t lose a thing. Restoring political and economic ties will not change anything.”

Libya’s dramatic rehabilitation comes as the country is emerging from a long period of stagnation. In 1970, the year after Col. Gadhafi deposed King Idris in a coup, Libya’s oil production averaged 3.4 million barrels a day, its highest ever.

Production dropped as Col. Gadhafi consolidated power, shut U.S. and British military bases and nationalized oil assets, which restricted oil companies’ roles. Libya’s oil sector bottomed out in the 1980s at 1 million barrels per day.

Oil production crept up in the 1990s and now stands near 1.6 million barrels per day. Now, Col. Gadhafi is seeking $30 billion in foreign investment, aiming to bring production to 1970s levels within the next 10 years.

“With the largest reserve base on the African continent, there’s no reason that Libya can’t restore the capacity it had in the 1970s, and double today’s production,” said Edward L. Morse at Hess Energy Trading in New York.

Oil production has been climbing since President Bush ended most restrictions in 2004 and allowed the return — after an 18-year hiatus — of U.S. oil companies Occidental Petroleum, Chevron, Marathon Oil and Amerada Hess.

The U.S. Energy Intelligence Agency expects Libya to produce 2 million barrels per day by 2008.

But Libya’s new production isn’t enough to dent sky-high oil prices, Mr. Morse said, with yearly global demand growing by 1.5 million barrels daily.

Monday’s announcement that Libya had been removed from the U.S. list of terror sponsors allows American companies to bring in technology that was previously blocked.

That, said Mr. Walker, means engineers can get more oil from their holdings by repressurizing old wells using steam injections, finding oil using 3-D seismic surveys and tapping tricky reservoirs with horizontal drilling.

Exploration contracts are considered the real prize. Less than half of Libya’s land mass, larger than Alaska, and territorial waters have been explored. Only 25 percent of the country is covered by agreements with oil companies. Mr. Walker and others say Libya’s oil wealth is probably far greater than its 39 billion proven barrels.

In January, Libya awarded exploration contracts to Occidental, Chevron and Amerada Hess, along with companies from Australia, Algeria, India, Brazil, Indonesia and Canada. A second round in February awarded contracts to European companies, as well as others from Japan, Turkey, China, Indonesia and India.

With Col. Gadhafi no longer an international pariah, the mercurial leader’s global clout is expected to increase as oil exports rise.

His profile is also boosted by being seen to cooperate with the Bush administration’s nuclear counterproliferation efforts, as an example to Iran of the benefits of dropping nuclear enrichment.

“They’ve got a lot of leverage now,” Mr. Morse said. “They’ve become the darlings of American politicians as an example to the Iranians.”

But the economic revival of Libya depends on overcoming creaky infrastructure, thorny bureaucracy and what analysts describe as a lackadaisical work ethic.

“They’ve been isolated from the rest of the world for 30 years,” said Philip McCrum, a Libya analyst with the Economist Intelligence Unit in London. “It’s almost like they’re starting from 1980.”

With sanctions gone and a U.S. Embassy on the way, the only diplomatic milestone left for Col. Gadhafi is an invitation to the White House, Mr. McCrum said.

“Wouldn’t that be an interesting sight? The original bogeyman shaking hands with the U.S. president,” he said.

Yesterday, Col. Gadhafi gave a warm welcome instead to Venezuela’s anti-American President Hugo Chavez.

A spokesman said Mr. Chavez said the two intended to discuss “social programs based on oil revenues.” He said the global oil market was also on the two leaders’ agenda in preparation for the June 1 meeting of the Organization of the Petroleum Exporting Countries in Caracas, Venezuela.

It was Mr. Chavez’s fourth visit to Libya.

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