Expansion of natural gas production remains a high priority for Libya for two main reasons. Libya aims to use natural gas instead of oil domestically for power generation, freeing up more oil for export. Second, Libya has vast natural gas reserves and is looking to increase its natural gas exports, particularly to Europe. Libya's proven natural gas reserves as of January 1, 2007 were estimated at 52.7 trillion cubic feet (Tcf ) by OGJ. Some Libyan experts believe, with more exploration, reserves may reach possibly 70-100 Tcf. Major producing fields include Attahadi, Defa-Waha, Hatiba, Zelten, Sahl, and Assumud. To expand its natural gas production, marketing, and distribution, Libya is looking to foreign participation and investment.

Libya’s natural gas production has grown substantially in the last few years. According to EIA, Libya produced 399 billion cubic feet (Bcf) in 2005, while consuming 206 Bcf. In 2006, IHS Energy reported Libya produced 985 Bcf of natural gas, more than two times the amount produced in 2005. Of the 985 Bcf, 474 Bcf was export to Italy and Spain, 385 Bcf was used in oilfield recovery projects, and the remaining 146 Bcf was used in the generation of electricity in Libya.

Libyan natural gas exports to Europe are increasing rapidly, with the Western Libyan Gas Project (WLGP) and the $6.6 billion, 32-inch, 370-mile "Greenstream" underwater natural gas pipeline, which came online in October 2004. Previously, the only customer for Libyan natural gas was Spain's Enagas. However, the WLGP -- a 50/50 joint venture between Eni and NOC -- has now expanded these exports to Italy and beyond. Currently, 280 Bcf per year of natural gas is being exported from a processing facility at Melitah, on the Libyan coast, via Greenstream to southeastern Sicily. From Sicily, the natural gas flows to the Italian mainland, and then onwards to the rest of Europe. Greenstream is 75 percent owned by Eni, with first flows coming from the Wafa onshore field near the Algerian border and the Bahr es Salam offshore field near Tripoli. Throughput on the Greenstream line reportedly can be boosted to 385 Bcf per year.

Italy's Edison Gas has committed, under a "take-or-pay" contract, to taking around half (140 Bcf per year) of this natural gas, and to use it mainly for power generation in Italy. Besides Edison, Italy's Energia Gas and Gaz de France have each committed to taking around 70 Bcf of Libyan natural gas. Another 70 Bcf per year of natural gas is to be produced from WLGP for the domestic Libyan market (feedstock or power generation) or possibly for export to Tunisia.

In 1997, Tunisia and Libya agreed to set up a joint venture in order to build a natural gas pipeline from the Melitah area in Libya to the southern Tunisian city and industrial zone of Gabes. As of November 2006, the joint venture was in the preparation phase for issuing a tender for an engineering, procurement and construction contract to build the pipeline. Construction on the pipeline is estimated to take 18 months, and the pipeline could come online as early as 2010 if all goes according to plan. Previously, Tunisia and Libya signed an agreement for around 70 Bcf of natural gas per year to be delivered from Libyan gas fields to Tunisia.

Eni also has promoted linking the reserves of both Egypt and Libya to Italy by pipeline. An agreement in principle to link Egypt and Libya's natural gas grids was reached in June 1997, following a visit to Libya by Egyptian President Hosni Mubarak. In 2001, a joint venture agreement was reached between NOC and Egypt's EGPC for construction of a pipeline to carry Egyptian natural gas to Libya (for power generation, water desalination, and possible export) and for another to carry Libyan oil to Alexandria, Egypt for refining and consumption there). The joint venture company is called "Arab Company for Oil and Gas Pipelines," or ACOG.

In 1971, Libya became the second country in the world (after Algeria in 1964) to export liquefied natural gas (LNG). Since then, Libya's LNG exports have remained low, largely due to technical limitations which do not allow Libya to extract liquefied petroleum gas (LPG) from the natural gas. Libya's LNG plant, at Marsa El Brega, was built in the late 1960s by Esso and has a nominal capacity of about 125 Bcf per year. However, US sanctions prevented Libya from obtaining needed equipment to separate out LPG from the natural gas, thereby limiting the plant's output to about 15 percent of nameplate capacity, all of which is exported to Spain (Enagas).

Now that sanctions have been lifted companies are looking to invest in Libyan LNG projects. In May 2005, Shell agreed to a final deal with NOC to develop Libyan oil and gas resources, including LNG export facilities. The deal came after lengthy negotiations on the terms of a March 2004 framework agreement. Reportedly, Shell is aiming to upgrade and expand Marsa El Brega and possibly build a new LNG export facility as well at a cost of $105-$450 million. In addition to Shell, other companies like Repsol YPF are also interested in developing Libya's LNG export potential.