By Mark Willis
Following the precipitous collapse in global energy markets over the last three years, an increasing volume of high cost hydrocarbon exploration projects once considered economically viable have been scaled down, put on hold, or canceled altogether.
Exploration projects requiring a breakeven point in excess of current oil and gas prices that have already succumbed to cost cutting among international oil companies include the Canadian oil sands, offshore drilling in the North Sea and Gulf of Mexico, and development of deep sea hydrocarbon reserves in the Arctic and West Africa.
While depressed oil and gas markets have continued to defy expectations of a likely rebound over the last 12 months, a number of exploration projects situated onshore or in relatively easy to access shallow waters remain scheduled to come on stream over the coming years.
Given the extent of infrastructure development traditionally associated with the initial upstream phase of hydrocarbon exploration, and subsequent provision of midstream services, these projects present a range of opportunities for the project cargo community, as well as other operators within the global energy sector.
Among the global regions so far largely unaffected by cost cutting and distressed energy markets is the East Mediterranean, with national governments and international oil companies still optimistic about the prospects for tapping into offshore hydrocarbon reserves contained within the Levant Basin, which falls within maritime territories controlled by Israel, Turkey, Egypt, Cyprus and Lebanon.
While a relatively small number of drilling projects in the region have taken place so far, with some success, the exact extent of hydrocarbon reserves remains unknown. However, a 2010 study from the U.S. Geological Survey estimated the Levant Basin has mean probable undiscovered natural gas reserves of 122 trillion cubic feet and mean probable undiscovered oil reserves of 1.7 billion barrels.
As yet largely untapped, the reserves therefore represent extraordinary potential for national governments in one of the world’s poorest regions, and underscore the considerable interest from some of the world’s largest oil and gas exploration firms.
The most significant progress towards eventual large-scale drilling and production has so far taken place within Israeli, Turkish and Cypriot waters, reflecting their relative political stability and reliable business climates within a notoriously volatile and unpredictable region.
Move Into Lebanon
Recent months have also witnessed a more concerted political drive in Lebanon to exploit the country’s wholesale offshore natural gas deposits, raising hopes and expectations that initial exploratory drilling may take place over the next 12 months.
While a consensus of analysts point to high potential for international oil companies, no official figures for the size of Lebanon’s hydrocarbon deposits are available.
“At this stage, the presence of these resources in commercial quantities is still hypothetical. No wells have been drilled offshore, and in the absence of exploration, these resources cannot be confirmed,” said Mona Sukkarieh, co-founder of Middle East Strategic Perspectives, a political risk consultancy.
However, credible analysis has estimated Lebanese waters may hold up to 80 trillion cubic feet of gas, and an additional 865 million barrels of oil, representing a source of great potential for domestic economic development, international oil companies, and project cargo operators.
Despite the absence of drilling, the government has made concerted efforts to gauge the extent of available recoverable reserves, with geological and geophysical service companies having performed wholesale seismic surveys covering the entirety of offshore waters over recent years.
According to Wissam Zahabi, chairman of the Lebanese Petroleum Administration, the official regulatory body in charge of managing the country’s petroleum sector, this process will pave the way for eventual drilling and gas production.
“The interpretation of 2D [two-dimensional] and 3D [three-dimensional] geophysical data shows well-defined structural and stratigraphic traps regarded as prospective, particularly for natural gas,” he said.
“Once drilling activities start, resources that are accessible to exploration will be identified. Further studies will then assess technically and economically recoverable reserves,” added Zahabi.
Potholes In The Road
Delays and setbacks in recent years have blighted efforts to develop Lebanon’s nascent energy sector, largely reflecting an amplification of the type of political instability that has periodically characterized the small Mediterranean country.
The return of factionalism among the country’s largest political groupings has prevented the election by parliament of a new president since 2014, and also the introduction by cabinet of two crucial legislative decrees relating to the delineation of 10 offshore blocks and composition of awarded contracts that are required to advance oil and gas exploration.
Political priorities have understandably also shifted towards managing the unprecedented wave of displaced refugees into Lebanon from neighboring war torn Syria.
“Lebanon is suffering from the political vacuum caused by the absence of a president. The security situation created in the aftermath of the Syrian Civil War has also caused severe disturbances.
Lebanon’s oil and gas efforts, while of extreme importance, have been put on hold,” said Karen Ayat, co-founder of the Lebanese Oil and Gas Initiative, or LOGI, an independent non-governmental organization seeking to help the country maximize the economic and social benefits of its hydrocarbon wealth.
“Lebanon’s first licensing round has been pending the issuance of two important pieces of legislations … (which) will decide on block delineation … and govern the tender process. They must be passed by the cabinet before any contract is awarded to oil and gas companies,” she said.
The exploration hiatus has been all the more frustrating given considerable earlier legislative progress towards eventual gas production, with the government having launched a pre-qualification round for exploration in spring 2013, from which 12 companies successfully qualified to bid as operators, and another 34 firms prequalified as non-operator partners.
Recent months, however, have witnessed encouraging progress towards ending the deadlock that has so far prevented agreement within the cabinet to passing the two energy sector decrees. Hopes are that a preliminary agreement between rival political groupings last July will expedite pending legislation and advance the election of a new president.
Improved Political Outlook
The drive to kick-start exploration of Lebanese waters reflects a combination of greater domestic political cohesion, as well as gas exploration progress made by neighboring countries, according to Ayat.
“The discoveries made in neighboring countries, namely Israel, Cyprus and Egypt … have been a great motivation for Lebanon to search its waters, even more so that it fears it might lose its share of the regional market,” she said.
“While the motivation to search for gas has always been there, the main obstacle has been the absence of a political consensus to launch exploration activities. If something is changing now, it may be the political momentum,” added Ayat.
Notwithstanding optimism that a faster legislative process could see the award of licenses and commencement of drilling within the next 12 months, a number of downside risks to creating a vibrant domestic energy sector remain. Lebanon’s maritime border dispute with Israel and the ongoing civil war in Syria both have the potential to delay gas exploration or scare off the foreign expertise and investment necessary to commence production.
Another prominent risk is Lebanon’s uncertain political environment, which may yet impede implementation of the recent deal between rival parliamentary parties or create an uncertain regulatory environment for prospective international oil company partners.
According to Sukkarieh, from Middle East Strategic Perspectives, the July 2016 political agreement “should be perceived as a preliminary deal, laying the ground for a broader, national deal. Once this is achieved, we can move forward with the oil and gas file.
“Higher country risk does not conceal Lebanon’s energy potential. Oil and gas companies are used to operating in areas where political and country risks are high,” she added.
Notwithstanding lingering uncertainties, future development of Lebanese offshore hydrocarbon deposits will remain an attractive proposition for international oil companies, with the potential to transform the undeveloped domestic economy through export revenues at the same time.
While requiring much foreign investment, the lack of existing infrastructure may also increase opportunities for the project cargo community, with the need to construct pipelines, LNG processing plants and refineries, as well as other transport linkages with destination export markets.
“There certainly are various obstacles to the efficient development of our resources, political, technical maybe, and geopolitical, but we are optimistic that the substantial interest in Lebanon’s resources will not go to waste and the recent efforts to launch the explorations will come to fruition,” said LOGI’s Ayat.
Mark Willis is a Dublin, Ireland-based freelance journalist specializing in politics and economics.
SOURCE
“The discoveries made in neighboring countries, namely Israel, Cyprus and Egypt … have been a great motivation for Lebanon to search its waters, even more so that it fears it might lose its share of the regional market,” she said.
“While the motivation to search for gas has always been there, the main obstacle has been the absence of a political consensus to launch exploration activities. If something is changing now, it may be the political momentum,” added Ayat.
Notwithstanding optimism that a faster legislative process could see the award of licenses and commencement of drilling within the next 12 months, a number of downside risks to creating a vibrant domestic energy sector remain. Lebanon’s maritime border dispute with Israel and the ongoing civil war in Syria both have the potential to delay gas exploration or scare off the foreign expertise and investment necessary to commence production.
Another prominent risk is Lebanon’s uncertain political environment, which may yet impede implementation of the recent deal between rival parliamentary parties or create an uncertain regulatory environment for prospective international oil company partners.
According to Sukkarieh, from Middle East Strategic Perspectives, the July 2016 political agreement “should be perceived as a preliminary deal, laying the ground for a broader, national deal. Once this is achieved, we can move forward with the oil and gas file.
“Higher country risk does not conceal Lebanon’s energy potential. Oil and gas companies are used to operating in areas where political and country risks are high,” she added.
Notwithstanding lingering uncertainties, future development of Lebanese offshore hydrocarbon deposits will remain an attractive proposition for international oil companies, with the potential to transform the undeveloped domestic economy through export revenues at the same time.
While requiring much foreign investment, the lack of existing infrastructure may also increase opportunities for the project cargo community, with the need to construct pipelines, LNG processing plants and refineries, as well as other transport linkages with destination export markets.
“There certainly are various obstacles to the efficient development of our resources, political, technical maybe, and geopolitical, but we are optimistic that the substantial interest in Lebanon’s resources will not go to waste and the recent efforts to launch the explorations will come to fruition,” said LOGI’s Ayat.
Mark Willis is a Dublin, Ireland-based freelance journalist specializing in politics and economics.
SOURCE
