Lebanon begins offshore energy exploration
WASHINGTON - The Lebanese cabinet has approved exploration deals for two offshore blocks with an international consortium. However, domestic political uncertainty and the maritime border dispute with Israel that has slowed development of Lebanese offshore natural resources could hinder Beirut’s drive to find economic salvation through exploiting potential natural gas reserves.
The Lebanese cabinet approved two bids put forward by a consortium, led by French energy conglomerate Total and including Italian energy giant Eni and Russian independent gas producer Novatek, for offshore Blocks 4 and 9. The two areas were part of a suspended 2013 offshore licensing round that had included ten oil and gas blocks but was put on hold following the resignation of then Lebanese Prime Minister Najib Mikati and an ensuing political paralysis that resulted in a 29-month power vacuum.
A truncated licensing round focusing on five offshore blocks was given the go-ahead following the installation of Lebanon’s government led by Prime Minister Saad Hariri in January 2017. Hariri has reportedly been a strong proponent of exploring Lebanon’s offshore gas potential to bolster the country’s economy and ease chronic power outages.
Although Lebanon began its inaugural offshore licensing round in October, the response from exploration firms has been tepid. Of the more than 50 companies that the Lebanese government qualified to bid, only the Total-led group submitted proposals for two of the five blocks tendered.
While the current poor investment climate, compared to stronger energy prices in 2013, may partially explain the lack of potential explorers’ enthusiasm, other factors, including the Lebanese political crisis, may have been in play.
Lebanon imports 90% of the fuel it requires to meet power generation needs — primarily fuel oil, which is an inefficient source material to produce electricity. Lebanon briefly imported Egyptian gas through Syria via the Arab Gas Pipeline but those imports dried up in 2012 because of strife in Egypt and Syria.
What oil and gas potential exists in Lebanon’s waters is unclear because no exploratory drilling has been conducted to determine the scope of any proven oil and gas reserves. A seismic survey by British company Spectrum Offshore suggested that the country’s deep-water gas reserves could amount to 80 trillion cubic feet (Tcf). A survey by French firm Beicip Franlab estimated 440 million-675 million barrels of oil reserves could lie beneath Lebanon’s waters.
However, Gebran Bassil — then the energy and water minister and now foreign affairs minister — in October 2013 suggested much more robust offshore reserve estimates of 95.9 Tcf of gas and up to 865 million barrels of oil potentially available in Lebanese waters.
A US Geological Survey assessment in 2010 estimated that the Levantine Basin, consisting of 83,000 sq. km including waters outside Lebanon’s jurisdiction in the easternmost portion of the Mediterranean, contains 122 Tcf of recoverable gas and 1.7 billion barrels of recoverable oil.
Major gas field discoveries in the eastern Mediterranean since 2009 — the Leviathan and Tamar fields in Israeli waters near the disputed maritime border with Lebanon, Cyprus’s Aphrodite field and Egypt’s massive Zohr field — have motivated Beirut to press ahead with its offshore exploration efforts.
In awarding the two blocks to the Total-ENI-Novatek consortium, Lebanon risks exacerbating the long-running maritime border dispute with Israel. The neighbours have been in contention over a region that covers more than 775 sq. km in the Levantine Basin.
The southern perimeter of Block 9 borders the line separating Lebanon and Israel’s exclusive economic zones and the two countries disagree over precisely where that line should fall. Israel said it would seek arbitration should Lebanon commit to drilling in the disputed area.
Although Israel did not authorise renewing the licence for the Israeli Alon D block that borders Block 9 on its northern edge when it expired in March 2016, the Israeli Energy Ministry reversed course last August and returned the acreage to the original licence holders, Israeli firm Delek Group and Texas-based Noble Energy, giving the two firms a 32-month extension. This timing was suspect as Beirut was gearing up for relaunching its inaugural offshore tender, which included Block 9 and two other blocks in the disputed area.
Once the Total-led consortium signs exploration and production-sharing agreements (EPAs) for Blocks 4 and 9 with the Lebanese government, drilling in the two blocks could start next year. Under the EPA terms, the consortium can explore for oil and gas over a 5-year period, which can be extended up to ten years with cabinet approval.