Georgina Enzer
On 4 January, Lebanon’s (B2 negative) newly formed cabinet approved two decrees to start offshore oil and gas exploration by setting out both the exploration blocks that it will offer and the terms and conditions for exploration and production agreements.
The bidding round will commence within six months, with 14 companies pre-qualified, and authorities expect the exploration phase to last five years. The cabinet’s decision is credit positive for the government because it reflects improved government effectiveness and has the potential to improve the country’s fiscal and external positions.
Lebanon is the last country in the Eastern Mediterranean region to explore its hydrocarbon reserves. After passing a hydrocarbon law in 2010, the country fell behind neighbouring countries in exploring the Levant Basin owing to internal political blockages. According to estimates collected by Credit Libanais S.A.L. (unrated), Lebanese waters contain 1225 trillion cubic feet (TEKMOR Note: What?) of technically recoverable gas, and reserves of 440-675 million barrels of oil. That compares with five to eight trillion cubic feet of estimated gas reserves in Cyprus’ (B1 positive) Aphrodite Field, whose production phase we expect will start in 2019.
Lebanon’s cabinet decision reflects improved government effectiveness since the formation of a new cabinet under Prime Minister Saad Hariri on 18 December 2016. Broad political support for the new government’s agenda could help to restart other long-delayed economic and fiscal measures, such as reforming the state-owned utility and telecom companies.
Producing hydrocarbons will support the economy’s growth prospects by lowering the cost of energy, now mostly based on inefficient, diesel power generators. Energy consumption has increased rapidly because of the influx of Syrian refugees. Additionally, repeated sabotage of the Arab Gas pipeline from Egypt, which has supplied Lebanon with gas in the past, makes it impossible for Lebanon to import natural gas.
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