Hopes rise in Lebanon energy bonanza
Beirut - The election of a new Lebanese president and the expected creation of a new government should provide a boost to flagging and long-delayed plans to explore suspected oil and gas deposits in the eastern Mediterranean.
Despite three years of stagnation due to political disagreement, in recent months there has been renewed interest in pushing ahead with a project that if handled correctly could add significant money to Lebanon’s cash-strapped economy.
“According to preliminary estimates, if such a wealth is properly managed, a sum of $60 billion to $70 billion would be secured for the Lebanese state’s fund,” said Samir Geagea, leader of the Lebanese Forces party, at a conference in September.
Although Lebanon’s politicians appear to be united now in the need to forge ahead with the exploration bids, daunting obstacles could yet trip up the process.
They include the slump in oil and gas prices, the expense of deep-water exploration, unease at Lebanon’s regulatory environment and a simmering dispute with Israel over control of offshore waters.
In March 2010, the US Geological Survey estimated that the Levantine Basin in the eastern Mediterranean, which includes the territorial waters of Lebanon, Israel, Cyprus, Syria and Egypt, potentially holds as much as 1.7 billion barrels of recoverable oil and 34.5 trillion cubic metres of natural gas.
Offshore surveys conducted by Spectrum, a British oil company, found that Lebanon’s waters could hold between 340 billion and 707 billion cubic metres of gas. Another survey estimated that Lebanon could be sitting on 440 billion to 675 billion barrels of oil.
In May 2013, the government, then acting in a caretaker capacity following the resignation of prime minister Najib Mikati, initiated the first offshore licensing round.
But the process was hampered by the failure of the government to pass two decrees related to the geographical delineation of the ten proposed offshore exploration blocks and the terms of the tender protocol and model exploration and production agreement to be signed by the government and the successful bidding companies.
The deadline for the submission of bids was repeatedly postponed until August 2014 when it was decided that the licensing round would end a maximum of six months from the adoption of the two decrees.
Renewed interest in the oil and gas file flared in July when Lebanon’s Petroleum Administration warned that Israel could siphon off Lebanese gas in a shared field at the southern end of Lebanon’s Exclusive Economic Zone (EEZ).
Politicians who had been bickering over the oil and gas sector came to an agreement. But the decrees are still on hold, as Lebanon struggles to form a new government following the election of a president in October, ending a 29-month political vacuum that blocked energy legislation.
Before the impasse over the unratified decrees, 46 companies, including major international players such as Shell, Chevron and ExxonMobil, were pre-qualified to submit bids for the exploration blocks. But the three-year delay has exhausted the patience of many companies, some of which have turned away.
Oil and gas prices have slumped in recent years, making a costly exploration process in the deep waters of the eastern Mediterranean less attractive. Additionally, the hydraulic fracking revolution has made it possible to recover oil deposits previously deemed economically unviable, lessening dependence on exploring new fields.
Nevertheless, in May, Amos Hochstein, a special envoy for energy affairs at the US State Department, said that despite the obstacles: “I’m optimistic about the future of this industry in Lebanon.”
Hochstein said that Lebanon’s advantage was its proximity to Europe, a potential valuable export market if and when oil and gas are discovered and begin flowing. “Every company that looks at this region knows that the likelihood of finding a discovery is pretty high,” he said.
Hochstein has been playing a role in trying to end yet another hindrance to Lebanon’s faltering attempts to begin exploring for oil and gas — a dispute with Israel over the delineation of their respective EEZs.
The southernmost point of Lebanon’s proposed EEZ is equidistant between the Akrotiri peninsula in Cyprus, the Haifa promontory in Israel and Ras Naqoura on the Lebanon-Israel border.
Lebanon’s line matches the northern edge of Israel’s own oil and gas exploration blocks and follows a line of buoys unilaterally placed by the Israeli Navy off the coast of Ras Naqoura.
However, Israel’s proposal for an EEZ boundary terminates 17km north-east of the Lebanese line, leaving an overlap of 854 sq. km of seabed claimed by both countries.
US State Department envoys in 2012 came up with a solution to split the disputed area, but both Lebanon and Syria so far have proven unwilling to back down from their original EEZ boundary proposals.
Still, Israel has forged ahead with exploration and production of fields in its territorial waters, leaving Lebanon lagging. In November, Israel announced it was inviting bids for 24 new oil and gas exploration licences, the first in four years.
If Lebanon is to catch up with Israel and Cyprus, the new government, when it materialises, will have to place the oil and gas file towards the top of its list of priorities.