Libyan hydrocarbons are increasingly sought after, prompting the need for a new economic strategy in the country. Amid the global energy crisis exacerbated by the US-Israel war on Iran, European countries are seeking alternative energy supplies and partnerships, leading to a reassessment of strategic value among North African governments. Algeria is positioned as a strong gas supplier, while Egypt offers infrastructure and access through the Suez Canal. Libya's strategic importance has also risen, with approximately 48 billion barrels of proven oil reserves, the largest in Africa, and a production capacity of 1.5 million barrels of oil per day, alongside substantial natural gas reserves.
Libya's oil reaches international markets via the Mediterranean, and the Greenstream gas pipeline connects its Mellitah complex directly to Europe. While Libya cannot replace Gulf oil and gas exports, it can play a significant role in diversification efforts in Europe and beyond. However, the country faces challenges in maximizing its potential due to structural constraints and insecurity. Despite being a major energy exporter, Libya experiences regular electricity blackouts due to inefficiencies in its domestic energy system.
Over 70 percent of Libyan gas production is consumed domestically, primarily for electricity generation, leading to struggles in meeting both domestic needs and export commitments. Gas exports have declined from around 200 billion cubic feet in 2019 to an expected 35 billion in 2025, marking the lowest levels in 22 years. Additionally, the country flares at least 200 billion cubic feet of gas annually due to underdeveloped infrastructure, wasting resources that could be utilized for electricity generation or exports.
The International Monetary Fund estimates Libya's total energy subsidy burden at around $17 billion, approximately 35 percent of GDP, one of the largest globally. Much of this funding supports imported refined fuels, as the domestic refining capacity is underdeveloped. Political fragmentation, institutional disputes, and periodic production disruptions due to conflict further complicate the domestic energy situation.
Increasing exports without addressing these issues risks enhancing energy security abroad while neglecting it at home, potentially leading to further instability in the already fragile nation. The global energy crisis presents Libya with an opportunity to boost revenues from hydrocarbons, but it also poses risks. As highlighted during the 5th meeting of the Mediterranean Energy Experts Circle, heightened demand for Libyan oil and gas could reinforce an economic model that has hindered the country for decades, characterized by hydrocarbon production, exportation, and delayed structural reform.
To capitalize on increased energy demand, Libya must transform its energy system by capturing flared gas, modernizing electricity generation and transmission, expanding domestic refining, reforming subsidies, investing in renewable energy, and engaging in sustainable regional energy cooperation. Libya's National Sustainable Energy Strategy aims for 22 percent of electricity generation from renewable sources by 2035, a goal requiring significant improvements in security and governance.
Another consideration is how Libya approaches heightened foreign interest. The country concluded its first major oil and gas licensing round since 2007 in February, with companies such as Chevron, Eni, QatarEnergy, Repsol, MOL, Aiteo, and TPAO securing new licenses. Commercial and geopolitical interests in energy are often intertwined, providing Libya with bargaining power if managed effectively. Instead of becoming a battleground for external actors, Libya could leverage diversified partnerships to attract investment and technology while reducing dependence on any single partner.
Libya's transformation should extend beyond its borders, aiming to become a key player in a Mediterranean energy hub by enhancing cooperation with neighboring states and utilizing existing production capacities and infrastructure. Egypt's large electricity system and refining capacity to the east, along with Tunisia's access to the Maghreb and European markets to the west, position Libya strategically with its hydrocarbon resources and solar potential.
Steps towards regional energy integration have already been initiated, such as the energy cooperation agreement signed between Egypt and Libya in January, which covers exploration and crude-oil refining development. The two countries are also discussing an 800km pipeline project worth $1 billion to transport Libyan crude to Egyptian refineries. Additionally, Libya and Tunisia are expanding cooperation through the Libyan-Tunisian company Joint Oil, which opened an international licensing round for shared offshore acreage and the development of the Zarat oil and gas discovery.
However, expanded cooperation risks creating dependence, a lesson Libya can learn from the Strait of Hormuz crisis. The country must ensure sufficient domestic electricity, refining, and production capacity to protect itself. Regional integration should provide alternatives without generating new vulnerabilities, focusing on specialization, connectivity, and redundancy based on needs and conditions.
The Iran war has granted Libya renewed strategic relevance, but this does not automatically make it a reliable energy partner. Transforming this potential into reliability requires a fundamentally different approach to the domestic oil and gas industry and overall economic development. Libya must seize this moment to pursue strategic redesign, enhancing production while recovering wasted gas, improving electricity infrastructure, developing refining and renewables, strengthening regional connections, and utilizing competition among international partners to attract investment. With the right strategies, Libya has the resources and geography to become a more significant player in the energy market.