* Libya's oil production now at 650,000-700,000 bpd - oilminister
* Gas exports to Italy disrupted, pipeline from Wafa fieldclosed for second day
* Revising its terms with existing investors
* Libya sees next licensing round, new petroleum law nextyear
By Lin Noueihed
LONDON, Oct 2 (Reuters) - Libya's oil exports could returnto full capacity in days once strikes in the restive east end,its oil minister said on Wednesday
But demands for more local power from some protesters aretied to the political transition and may take time to resolve,Abdelbari Arusi added.
To keep international oil companies on board through theturmoil, Arusi said Libya was already working on improving termsfor existing investors and easing terms in new license rounds.
"We're expecting to solve this issue any time and by solvingthis issue we can have oil production back to 1.6 millionbarrels per day," he told a conference. "Our problem in Libyanow is a political problem, not a technical problem."
A mix of striking workers, militias and political activistshave blocked Libya's oilfields and ports for more than twomonths resulting, according to Arusi, in over $5 billion of lostrevenues for the OPEC member whose budget relies on oil exports.
Libya took its first steps towards resuming output from thewest in mid-September after reaching a deal with locals.
Arusi said a parliamentary committee was negotiating withgroups in the east and only a small number of protesters werestill holding out. Because it is the ports not the fields thatare blocked in the east, he added, production could return tocapacity in three to four days once disputes are settled.
Talks to reopen the major oil export terminals of Es Siderand Ras Lanuf in the east have taken time because while someprotesters are simply demanding better benefits, more localinvestment and more jobs, others have linked their demands topolitical wrangling over the future shape of Libya.
Protesters in the east want a federal Libya with greaterpowers and the headquarters of the National Oil Company (NOC) transferred to Benghazi, the capital of the east and birthplaceof the 2011 revolution that removed Muammar Gaddafi from power.
Parliament is due to write a new constitution for the newLibya but different groups are pushing their own agendas. Thegovernment lacks the military means to crush armed protestersand in any case, Arusi said it was reluctant to use force as itsought to build a new democracy.
"Some in Ajdabiya, Brega and Ras Lanuf are asking to form afederal system and if you like that then you have to put it inthe constitution," Arusi said. "We are working on theconstitution."
OUTPUT INCHING UP
Growing instability since 2011 coupled with disruptions and,in some cases, disappointing finds have prompted some majorsincluding ExxonMobil and Royal Dutch Shell tofreeze activities and smaller firms like Marathon areselling.
Arusi said Libya was reviewing the terms for existingforeign investors in its energy sector as well as drawing upmore attractive terms for its next licensing round, which hesaid should be launched in the first half of next year.
A new petroleum law would also be ready next year, he added.
"We're forming a committee to review the previous agreementsand come up with new agreements to ease our terms and conditionsand come up with something good for both parties," Arusi said.
Libya's crude oil output has risen to near 700,000 bpd sincethe western fields reopened last month, Arusi said.
The worst disruption since the 2011 war had cut output tobelow 200,000 bpd last month from 1.4 million bpd before.
Arusi said there were "positive signs" that the port ofHariga in the far east would re-open soon and oil officials havesaid there had been progress in talks with local councils there.
In a sign that disruptions could pop up in different partsof the country, however, protesters in the west have shut a gaspumping station supplying a facility jointly run with Italy'sENI and reducing exports to Italy.
Import flows into Italy on Tuesday were around 8.8 millioncubic metres compared to shipper requests for 12.7 mcm,according to data from gas grid operator Snam.
Arusi confirmed that gas flows from the Wafa field, thelargest gas field in western Libya that feeds the Mellitahcomplex south of Tripoli, had been shut for two days and exportsto Italy had been halved.
"We have substituted gas from the offshore field of Bahral-Salam and reduced our gas to Italy to compensate what we lostfrom the Wafa field," he said, adding that the priority was toensure enough domestic gas supplies before exporting.
He expected gas supplies to be restored "today or tomorrow."
