Libyan authorities announced a cooperative plan with Egypt to build an oil refinery and a natural gas pipeline on Egypt’s north coast which is 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 USD 2 billion to USD 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.

Mr Mohamad Zayed assistant minister for Arab affairs said that “We have very strong ties between Egypt and Libya. First, we are neighboring countries. And this is a very important point. We are also African countries and Mediterranean countries.

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 % 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.