CAIRO: Libyan authorities announced last week a cooperative plan with Egypt to build an oil refinery and a natural gas pipeline on Egypt’s north coast – a move that signals the increasingly close relations between the two countries.
Libya, which has made significant strides in recent years to regain international legitimacy, says it hopes to boost dramatically its investment in Egypt from $2 billion to $10 billion over the next two years.
The refinery, paid for in full by the Libyans, will be built west of Alexandria and will be used to process Libyan crude oil. Libyan authorities anticipate the refinery will have the capacity to process 250,000 barrels per day.
The natural gas pipeline will stretch from Alexandria in the east to Tobruk, Libya in the west, though authorities did not discuss whether Egypt would be importing or exporting the gas.
Meanwhile, Egyptian government officials stressed the close working relationship between the two countries.
“We have very strong ties between Egypt and Libya, said Mohamad Zayed, assistant minister for Arab affairs. “First, we are neighboring countries. And this is a very important point. We are also African countries and Mediterranean countries, he added, citing the common identity shared by the two neighbors.
Libya’s decision to increase its refining capacity comes at a time when its demand for oil is forecasted to increase in the coming years. Business Monitor International expects Libyan demand for oil to increase from 246,000 barrels per day in 2008 to 285,000 barrels per day in 2010, a 3 percent annual growth rate.
Similarly in Egypt, demand for oil is expected to rise in the years to come, though the country’s production levels are likely to decline over the same period. Business Monitor International predicts that the demand for oil will rise from 616,000 barrels per day in 2007 to 696,000 barrels per day in 2010. Output, by contrast is expected to decline from 696,000 barrels per day to 610,000 barrels per day.
These increasing business relations may signal the end of an era marked by frosty relations between the two countries. Indeed, trade volume, according to the Ministry of Trade and Industry, increased 39 percent between fiscal year 2005-2006 and fiscal year 2006-2007 from $191 million to $267 million.
“We believe that the economic ties are less than they should be, noted Zayed. “And that the political ties are very deep.
He credited “regular consultations between the two leaders, Egyptian President Hosni Mubarak and his Libyan counterpart Muammar Qaddafi, for the stable political relations.
Though Egypt enjoys a trade surplus with Libya, the trade gap has continued to narrow in recent years. This is due primarily to a rise in imports from Libya, which increased 75 percent between 2006 and 2007.
Another indication of improving relations between the two countries is the significant number of Egyptians working in Libya.
“We have close to one million Egyptian workers in Libya, said Zayed. “And this adds to the strategic component.
The agreement that will allow Libya to build a natural gas pipeline and an oil refinery is not, however, the first major deal of 2008 between the two countries. In March, the two sides announced plans to bolster their electrical connections, seeking to boost voltage levels and stabilize the grid.
The natural gas deal comes at a time when Egypt’s gas export market is flourishing. In the early 1990s, Egypt discovered it held vast natural gas reserves. Lacking significant quantities of oil, Egypt took to vigorously marketing its natural gas in an effort to build pipelines and export a portion of its holdings.
Recent volatility in natural gas prices, however, has led the government to place a moratorium on new export contracts until prices stabilize.
Ultimately, officials on both sides of the Saharan border hope that increasing economic ties between the two countries will put to bed an era of rocky diplomacy. Whether the growing economic relationship between the two countries marks a true diplomatic turning point, however, remains to be seen.
