The head of Libya’s National Oil Corp., Shokri Ghanem, has his eye on expanding gas exploration and production in a bid to raise exports to Europe, as well as privatizing oil refineries and the petrochemical sector, according to an interview he gave this month to the Oxford Business Group.

Once an international outcast for its penchant for terrorism and weapons of mass destruction, Libya now wants foreigners to take a greater stake in the oil market and in turn encourage local firms to play a larger role as well.

More than two-dozen companies from around the world are betting on Libya these days, said Ronald Bruce St John, an analyst for Foreign Policy in Focus, a Washington-based think tank. He has served on the international advisory board of the Journal of Libyan Studies and the Atlantic Council Working Group on Libya. The government of Muammar Gaddafi has relied on foreigners to scout for new wells and bolster current production, “if they’re ever going to come close” to a target of three million barrels a day, he explained.

The burning question, though, is “how profitable would it be” for an overseas oil concern to forge ahead in the country’s hit-or-miss exploration climate, a situation made even more dicey by Tripoli’s erratic policy moves, St John told OilPrice.com. Libya’s national oil company chief has talked about the need for foreign investment over the last few years, he noted, but this time Ghanem’s words follow months of government bungling and less-than-stunning results in the oil and gas fields.

One of last year’s biggest shocks was Gaddafi’s suggestion to nationalize the country’s oil and gas interests, a consideration that seemed to echo the early days of the Libyan revolution when the industry was partially nationalized. These words set the stage for the National Oil Corp. to renegotiate long-term contracts in Libya’s favor with major oil companies operating in the country, such as Italy’s ENI, the United States’ Occidental, PetroCanada, France’s Total and Spain’s Repsol, St John added.

International investors were also a little unnerved by the Verenex Energy Inc. fiasco, St John added. He said the small Canadian oil exploration player was the only company to make a sizeable discovery – more than two billion barrels of oil – under strict EPSA, phase four, contracts awarded after 2005.

But Libya’s interference in negotiations between Verenex and the China National Petroleum Co. over the sale of the Canadian firm’s exploration contract drove down Verenex’s share price by 30 percent and forced it to sell the contract to Libya at 70 percent of the original offer to China, he said.

Dampening enthusiasm still more, no company under these 2005 agreements has scored big in oil apart from Verenex, St John maintained.

So where does this all leave Libya and its nervous investors today?

Ghanem’s latest declarations are obviously attempts to “put a positive face on an industry that has not been going well in the last 12 to 18 months,” St John said, adding that these events have prompted “great uncertainty” in the oil and gas industry, and “a lot of that’s their own fault.”

The oil chief is a little anxious that international companies potentially stumbling across petroleum finds may one day “cap the wells,” while unsuccessful players will pull out entirely, St John said.

And now, a sector which has been “relatively efficient and transparent” is following other parts of the Libyan economy that so far have rejected reforms, he warned, saying the oil industry seems to have fallen prey to conservative factions within the government coveting more control.

The Gaddafi government is arguably on an uneasy footing as it makes a play for more international money, noted Simon Henderson, a Baker fellow and director of the Gulf and energy policy program at the Washington Institute for Near East Policy.

Within the Libyan government there is resistance to encouraging more foreign investment in the oil market, but Ghanem’s argument is the country cannot go it alone, said Henderson. The North African country sorely needs foreign investors but wants them to view such requests as a partnership rather than as an invitation to take over sectors of the economy, he explained.

“The difficult challenge is at home, Arab nationalism is a very strong thing,” Henderson told OilPrice.com “Foreign investors are seen as diminishing Arab nationalism and therefore are resisted ideologically. And from a foreign investor’s point of view, selling the notion to your shareholders that you can get a good agreement with an apparent eccentric like Col. Gaddafi is questionable.”

For the most part, larger companies will probably “soldier on,” predicted St John, but smaller companies will be more careful about “how much, and how fast” they invest in Libya -- especially if there’s a better game in town.

By. Fawzia Sheikh for OilPrice.com who focus on Fossil Fuels, Metals, Crude Oil Prices<a href="http://www.oilprice.com" target="new">Alternative Energy</a> and Geopolitics To find out more visit their website at: http://www.oilprice.com