energy strategy

On Friday, Minister of Fuel and Energy Yuriy Boyko said that the head of the Libyan Jamahiriya, Colonel Muammar al-Gaddafi, instructed the government agencies of his country to resume the implementation of oil and gas production contracts signed with Ukraine back in 2004. The Ministry of Fuel and Energy believes that the development of the field in Libya can begin this year. This project will allow Naftogaz to earn an additional $350-400 million per year.

Negotiations between Yuri Boyko and Muammar al-Gaddafi ended on Friday. Commenting on their results, the head of the Ministry of Fuel and Energy said that he was able to agree on the renewal of contracts for oil production in Libya. “Despite all the difficulties, we agreed with the Libyan government that we would begin to work. Gaddafi gave specific instructions on the resumption of relations and agreements,” he noted. “Ukraine will soon begin to extract oil in Libya and supply grain to this country.”

Let us recall that the production sharing agreement (PSA) between NJSC Naftogaz of Ukraine and the National Oil Corporation of Libya involves the development of blocks whose area exceeds 200 thousand square meters. km, and the predicted resources are about 110 million tons of oil and 30 billion cubic meters of natural gas. The minimum investment volume of Naftogaz in exploration work in Libya, according to the terms of the PSA, was to be $57.5 million.

The agreement was concluded on October 10, 2004, but has not yet been ratified by the Libyan government. The Ministry of Fuel and Energy explained to Kommersant that Naftogaz was not allowed to begin production of Libyan hydrocarbons in 2005, as planned, by checking the legality of the agreements concluded in 2002-2004, initiated by the former chairman of the company’s board, Alexei Ivchenko. The inspection ended in December 2005, no violations were identified, but since the necessary work with the Libyan authorities was not carried out, the Libyan side froze the implementation of the contract. Mr. Ivchenko could not be reached for comment.

NJSC Naftogaz of Ukraine does not disclose the details of the negotiations. As Kommersant has learned, the agreements reached on Friday involve the restoration of the contract for oil and gas production in the region on the same terms. “Gaddafi gave instructions to consider the issue in parliament, to conclude additional agreements on the construction of infrastructure and specific volumes of production,” a source in the department of oil, gas and oil refining industry of the Ministry of Fuel and Energy told Kommersant. “If everything goes well, by the end of the year Naftogaz will be able to supply the first oil from fields to world markets."

Market participants and experts believe that oil production in Libya will primarily be aimed at generating additional profits. “Today, the cost of oil production in North Africa does not exceed $30-35 per ton, and the price of oil of this type on world exchanges reaches $450 per ton. After taxes, Naftogaz can earn up to $50 on each ton of oil,” says the general Director of OJSC "Galicia" (Drohobych Refinery) Alexander Lazorko. “At a field like the one that NJSC received under management, you can produce 5-7 million tons of oil per year and receive 350-400 million dollars in additional profit.” “The funds will most likely be used to improve the company’s financial performance,” suggests Viktor Topolov, a member of the fuel and energy complex committee. Let us remind you that Naftogaz ended 2005 with a loss of $368.4 million.

The Libyan contract is not the first attempt by Naftogaz to find additional sources of income abroad. Last year, the company signed a concession agreement for the development of the Egyptian oil and gas block AESE (see Kommersant dated December 18, 2006).

According to experts, Libya is one of the most promising destinations for Ukraine. “In Libya, they do not want to give all the fields to Western companies in order to diversify the risks in case of a repetition of the embargo by the United States and the European Union. That is why companies from the countries of the former USSR are given a certain priority in cooperation,” explained the press service of OJSC LUKOIL (Moscow) .

Let us recall that in 2004, Libya offered foreign companies to develop about 140 oil and gas blocks on land and in the Mediterranean Sea. However, then, due to sanctions imposed by the United States and the UN back in 1999, investors were attracted to only 68 plots. After the lifting of sanctions in 2005, the Libyan leadership set a course to increase the role of the oil sector in the country's economy.

However, according to Vadim Karasev, director of the Institute of Global Strategies, it has not yet been possible to achieve a significant increase in investment - the country has a number of problems that scare away Western investors: undeveloped infrastructure, a high level of bureaucracy and confusing legislation. “While large oil companies are bypassing Libya because of these problems, medium-sized companies like Naftogaz are managing to achieve some success,” Mr. Karasev notes.

OLEG Kommersant-Gavrish

Yuri Boyko pity the colonel