Lebanon launches its second offshore oil & gas licensing round - MIDDLE EAST STRATEGIC PERSPECTIVES

April 5, 2019

The cabinet approved the launching of Lebanon’s second offshore oil & gas licensing round in its latest session on April 4, 2019. Energy Minister Nada Boustani officially announced the launching of the tender in a press conference on April 5.

Five blocks are on offer: Blocks 1 and 2 in the northern part of Lebanon’s Exclusive Economic Zone, Blocks 8 and 10 in the south, and Block 5 in the middle of the EEZ.

As in the first licensing round, interested companies must form a consortium of at least three companies, one of which an operator, to place bids. The deadline to place bids is on January 31, 2020.

The Lebanese Petroleum Administration has recently announced some changes to the process. The tender won’t be preceded by a separate pre-qualification round, as in the first licensing round. The pre-qualification round will be mainstreamed in the process, giving companies more time to consider participating. The evaluation of pre-qualification applications will take place in the first weeks of February 2020, with pre-qualification results expected to be announced on the third week of February. It will be followed with the evaluation of submitted bids, a step that should be completed by mid-March 2020. Negotiations with the provisional winners will then take place, and if results are satisfactory, the Council of Ministers would be expected to approve the licensing by mid-April 2020.

The Eastern Mediterranean Gas Forum: A Lebanese perspective - MIDDLE EAST STRATEGIC PERSPECTIVES / EXECUTIVE MAGAZINE

February 6, 2019

Energy Ministers from Egypt, Cyprus, Greece, Israel, Italy, Jordan and the Palestinian Authority took an important step in Cairo toward establishing an Eastern Mediterranean Gas Forum (EMGF) on January 14. According to the declaration that followed the meeting, the EMGF will, among other things, assist in the creation of a regional gas market, ensure security of supply and demand, optimize resource development, facilitate the use of existing infrastructure and build new ones if necessary, etc. Intra-regional cooperation in this part of the world was at best marginal before the discovery of major hydrocarbon resources. Since 2009, shared interests and a series of gas discoveries have encouraged dialogue. The EMGF appears to be the first tangible result of these new regional dynamics.

The Forum’s raison d’être is regional energy cooperation. Almost ten years to the day after the announcement of the discovery of Tamar (January 17, 2009) – the first major gas discovery in the Levant Basin – it has become increasingly clear that regional cooperation is needed to make the most out of the region’s resources. The Eastern Mediterranean’s gas potential is promising. But, beside Egypt, the countries in the region have to deal with a number of challenges to exploit their resources. First, these resources are mostly offshore, in deep and ultra-deep waters. When found in commercial quantities, their extraction is expensive. Second, the relevant infrastructure to monetize these resources is quasi-inexistent (outside Egypt).

Lebanon’s second licensing round: Lessons learned and the case for stability - MIDDLE EAST STRATEGIC PERSPECTIVES / EXECUTIVE MAGAZINE

September 12, 2018

Preparations for the launching of Lebanon’s second offshore licensing round have begun. The Lebanese Petroleum Administration has published a tentative timeline for the tender, which will be officially launched by the end of 2018. The process, including the pre-qualification phase, will extend over a period of one year.

Lebanon’s oil and gas sector: A roadmap for 2018 - MESP / EXECUTIVE MAGAZINE

February 6, 2018 / Lebanon

At the end of January, Lebanon signed its first exploration & production agreements (EPA) with a consortium of companies composed of France’s Total (as operator), Italy’s Eni, and Russia’s Novatek. The consortium had placed two separate bids on October 12, 2017, the only ones received in Lebanon’s first offshore licensing round, for Block 4 and Block 9. With the contracts signed, Lebanon can now look forward to the exploration phase. The consortium has committed to drill two wells in 2019, one in each block. But what can Lebanon expect prior to drilling?

FSRU Projects in the Eastern Mediterranean - MIDDLE EAST STRATEGIC PERSPECTIVES

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A national oil company for Lebanon? A premature and incomplete debate - MESP / EXECUTIVE MAGAZINE

May 11, 2016

It’s been three years the nascent oil and gas sector in Lebanon was brought to a complete halt. The relative success of the pre-qualification round in 2013 brought the sector to center stage and contributed to the hype surrounding it. But the pre-qualification round was not followed by a tender, which was put on hold for various rational and irrational reasons. No licenses were awarded. No exploration was conducted. Not a single discovery was made.

Yet, the oil and gas debate in the country appears to be oblivious to these realities.

Egypt: Italy spat and the inevitable questions about ENI - MESP

April 11, 2016, Lebanon

The brutal murder of Giulio Regeni, an Italian doctoral student, in Egypt in January 2016 is threatening the once close relations between Cairo and Rome, with speculations the Egyptian security services might be involved.

Since he came to office in June 2014, President Abdel Fattah al-Sisi has forged close ties with Italian Prime Minister Matteo Renzi. Italy is Egypt’s first European trade partner (and the second overall, after the U.S.). Back in November 2014, Prime Minister Renzi hailed Egypt as a “strategic partner” during a visit to Rome by President Sisi (his first official visit to Europe after his accession to power), at a time many western countries viewed the new Egyptian regime with a certain apprehension. Regeni’s killing came just as business, political and security cooperation between Italy and Egypt were being ramped up.

Lebanon’s emerging oil & gas sector: a discussion with Energy Minister Arthur Nazarian | MESP

Lebanon’s emerging oil & gas sector: a discussion with Energy Minister Arthur Nazarian

AUGUST 31, 2014 in LEBANON, LEBANON - OIL & GAS UPDATES, OIL & GAS

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Energy Minister Arthur Nazarian issued a decision on August 8, 2014, postponning the deadline to submit bids in Lebanon’s first licensing round from August 14, 2014, to a maximum period of six months from the date of the adoption of the two missing decrees related to block delineation, and the tender protocol and model exploration and production agreement (EPA) by the government. Frequent power vacuums within the executive branch (the country was run by a caretaker cabinet with limited powers for almost a year, from March 2013 until February 2014, and has been without a President since May 25, 2014) made it difficult to approve the two decrees. Yet, Lebanon’s seemingly high country risk at this point in time does not eclipse its substantial energy potential.

In a long discussion with Middle East Strategic Perspectives, Energy Minister Arthur Nazarian provides an update of the prevailing situation and presents the latest developments related to the sector, including progress made in the FSRU and LNG import tenders. Nazarian outlines the advantages Lebanon offers to foreign investors and presents his interpretation of Lebanon’s position in the Eastern Mediterranean. As Energy Minister, and industrialist, he lists the major effects the exploitation of offshore resources could have on the economy and calls on the local business community to engage in the development of the petroleum sector by building its capabilities and seizing the opportunities presented by the EPA, which requires right holders to give preference to local goods and services, even if the offer is slightly more expensive. Throughout the interview, Nazarian expresses an optimistic, yet measured tone, that is appreciated in the current circumstances.

Lebanon just announced yet another postponement of its first licensing round. Do you think this and the prevailing political instability could affect foreign companies’ interest in getting involved in the exploitation of offshore resources?

International Oil and Gas companies expressed their interest in investing in the Lebanese offshore through the pre-qualification process conducted in 2013. The decision for IOCs to invest in a country is based on several factors that they assess thoroughly both at the level of the host country as well as the IOC. At the country level, these factors include but are not limited to: the hydrocarbons’ prospectivity, geological assessments, technical capacity and challenges, petroleum regulations, fiscal systems, national laws and regulations related to foreign investments, governance of the petroleum sector and its management, financial and judicial reliability and stability, political context, and national and regional security.

Lebanon scored well on all of the factors listed above – set aside security – except for the ability to abide by the timeframe for the completion of the first licensing round approved by the Council of Ministers.  This affects the overall planning and investment programming of the IOCs. Noting that exploration opportunities are available at the global and regional levels with high competition among countries as well as between IOCs.

IOCs that have high interest in investing in the Eastern Mediterranean and have long term plans to tap on the gas prospectives, will still be interested to invest in Lebanon. However, the timing and the competing investment opportunities, along with the prevailing political context will determine the final decision of IOCs.

IOCs conducted their own risk assessment with regards to Lebanon’s political context and security status, based on which they have submitted their pre-qualification application, bought and interpreted seismic surveys, and are preparing their bids. This shows the interest of IOCs to operate in Lebanon, noting that they very often operate in countries with high political and security uncertainties.

However, given this context, IOCs will factor-in these risks in their bids to compensate for any potential losses. Accordingly, the Government needs to work on de-risking the factors affecting the investment decisions for IOCs, to ensure that we receive the optimal bids for the first licensing round.

The Ministry and the LPA have taken all these factors into consideration, thus creating a petroleum regulatory system along with a licensing strategy that would ensure obtaining the best offers at this period of time.

Lebanon is lagging behind some of its neighbors. What advantages could it offer to investors to differentiate itself and promote itself as a privileged destination for foreign investments?

It is true that Lebanon is lagging behind its neighbors with regards to exploration and production activities, however Lebanon may compensate for this through two main issues. The first is the extensive and high quality 2D and 3D seismic surveys covering 100 and 70% of the Lebanese offshore respectively. This would save at least two years of the exploration phase. Second, the relatively easy access for exporting Lebanese gas to the region through the Arab Gas Pipeline, to Europe through onshore or offshore pipelines, and to the international market through LNG plants that can be built in Lebanon, jointly with other countries in the region, or by using existing plants in Egypt for example. This provides a good added value for Lebanon compared to countries in the region.

Offshore exploration, as well as developing the needed infrastructure for gas processing and transportation are capital intensive. Lebanon has a strong banking sector and private sector companies that have enough capital and are willing to invest in the petroleum sector. This will encourage IOCs to invest in a country where local capital exists unlike the neighboring countries.

In addition, Lebanon can offer qualified workforce and human resources that are well positioned to acquire quickly the specific skills needed to actively engage in developing the petroleum sector. This will also be an attractive factor for IOCs, particularly in cases of critical security status were IOCs will face difficulties in mobilizing foreign workforce.

The time factor is very important in the race to exploit resources. Other countries in the region are already either exploring for or exploiting their resources (Israel, Cyprus, but also Greece, Croatia, Montenegro etc). Could this have consequences for a country that aspires to become a gas producer and perhaps even exporter?

Time is a crucial factor for obtaining the optimal conditions for gas exploration and production. As a new gas exporter, the Levant basin is attracting a lot of global interest from IOCs as well as from countries, particularly the European Union whose new energy security strategy focuses on diversification of gas imports. The recent energy conference and Ministerial meeting organized by the EC and hosted by Malta and Cyprus, confirmed the importance of the Eastern Mediterranean region, including Lebanon, as a strategic partner to the European Union that may help achieve the diversification objective set out in the energy strategy. In addition, gas demand in countries in the region will continuously increase due to the high population growth, growing consumption patterns, and environmental policies. Moreover, discussions have been initiated with regards to creating a regional gas pricing hub.

As mentioned earlier, Lebanon’s strategic position and prospective hydrocarbons production potential, may allow it to play a role in supplying a portion of the regional demand, but more importantly contribute to the diversification of gas supplies. Depending on the volume of gas that may be produced, Lebanon may be able to access the global market through LNG. This will open new venues and market options.

Could you update us on the FSRU and LNG import tenders?

Ministry of Energy and Water have completed, with the help of the international consultant Poten & Partners, the evaluation of technical and financial offers of the FSRU tender where we had fierce competition between three international companies that led to very good prices w.r.t FSRU’s market price. The final report has concluded a preferred bidder and was sent on May 19th 2014 to the Lebanese Cabinet for their review and approval.

In addition to that, the ministry has been approached by a good number of LNG suppliers who showed interest in the EOI that was launched in December 2013, and now we are in the process of initiating the negotiation with them.

Both the FSRU and the LNG supply will commence as soon as the cabinet give the green light on the whole process.

As a minister, and also an industrialist, what are the major effects you would expect the exploitation of offshore resources to have on the economy?

The exploration and exploitation of the offshore hydrocarbon resources will have major beneficial effects on the national economy, directly through jobs creation and direct investments that will be committed by the IOCs or indirectly through the accessorial businesses and economy that will be developed and it’s repercussions on the governmental budgets and taxation policies…

Namely:

- The creation of thousands of jobs directly in the sector: i.e. the operator oil companies that will be awarded the licenses.

- The creation of an even greater number of jobs in the service companies, especially that the ministry and the PA have made a special emphasis in the EPA on the local component where as a minimum of 80% of the hired human resources, should be Lebanese and a 5 and 10% advantage have been provided for the Lebanese suppliers and service sub-contractors.

- Lebanese industrialists will however benefit from a cheap energy bill which has been so far one of the majors impediments to competitiveness on the international markets for Lebanese products.

- The revenues of the petroleum activities that would be injected directly in the budget will inevitably decrease the high custom rates on raw materials that have also been a great impediment to Lebanese products competitiveness…

How do you think the business community and the private sector should prepare for the possible development of an oil and gas sector?

The Lebanese business community is very dynamic and active. Some already started exploring opportunities to work in the oil and gas sector in Lebanon. Our aim is to maximize the benefits of this sector for the national economy and the people of Lebanon. The investments to be undertaken during the exploration and development phases are vital for engaging the Lebanese workforce and service companies. For that, the Ministry and the LPA have put in place very strong regulations for local content, where IOCs are required to employ up to 80% of Lebanese nationals in their workforce. This target is to be met gradually. In addition, goods manufactured in Lebanon will have a 5% cost incentive, and 10% for services provided by Lebanese companies.

The Lebanese private sector is encouraged to engage in the development of the petroleum sector through first understanding the value chain including all the services and goods that will be required by IOCs during the exploration, development and production phases. This needs to be followed by building their own capabilities to be able to provide the required services and goods within the required quality standards and competitive prices.

The engagement of the local business sector is vital in order to ensure that foreign investment is benefiting the local economy.

Link to source: http://www.mestrategicperspectives.com/2014/08/31/lebanons-emerging-oil-gas-sector-discussion-energy-minister-arthur-nazarian/

Cyprus: Energy potential, export options & revenue management | MESP

Cyprus: Energy potential, export options & revenue management

AUGUST 18, 2014 in LEBANON - OIL & GAS UPDATES, OIL & GAS

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As Cyprus and licensed companies prepare to resume exploratory drilling, starting with the ENI-KOGAS consortium, which is expected to start drilling in Block 9 before summer’s end, Nicosia is, more than ever, determined to turn the island into an energy hub for the region. However, progress has been relatively slowed down as the country faces substantial challenges. While the appraisal drilling in Aphrodite was largely an excellent news, confirming the presence of significant gas reserves, the quantities in question were inferior to previous estimates. More gas, whether from new discoveries offshore Cyprus or from neighboring countries, is needed to justify the construction of an LNG plant in Vasilikos, the country’s chosen option for gas exports. The coming year will be instrumental for the Cypriot gas sector. Beside ENI-KOGAS, Texas-based Noble Energy is expected to conduct further drilling in Block 12 by early 2015, and Total, which holds exploration rights in Blocks 10 and 11 is expected to start drilling in the second half of 2015.

Middle East Strategic Perspectives asked Charles Ellinas, CEO and founder of ECP Cyprus Natural Hydrocarbons Company and former head of KRETYK, the national oil and gas company, to share his views on the latest developments in Cyprus, the Island’s export plans and ambitions to establish a regional energy hub.

Energy potential

Based on assessment of available data, it is estimated that all six blocks currently leased in Cyprus’ EEZ may potentially hold 1000 bcm of natural gas.

Noble/Delek/Avner completed appraisal drilling of Aphrodite, with initial results confirming 100 to 170 bcm with a mean of 145 bcm of high quality gas. There are good indications of other smaller gas fields in Block 12, with at least one estimated to hold 50-60 bcm. Noble plans to start drilling early 2015.

ENI/KOGAS have Blocks 2, 3 and 9 and are planning to start exploration drilling late 2014, with completion scheduled into 2016.

Total has Blocks 10 and 11, with potential for both oil and gas, and have now completed their seismic survey programme, with exploration drilling scheduled late in 2015.

Thus, by 2016, Cyprus will know exactly how much gas it has in its six licensed blocks.

Export options

If Cyprus is to maximize its benefits from gas it should retain flexibility in its export options so that it can access both the Asian and European markets. This is the reason why its export policy is centered on LNG. Since 2012, the government’s policy has been to base this on the development of an LNG plant at Vasilikos.

Depending on gas quantities and the regional political situation, Cyprus could also consider exports to regional markets, much as Israel is doing.

The main export options are:

• LNG through a land based facility at Vasilikos
• Floating LNG (FLNG)
• Floating CNG (FCNG)
• Export to Egypt and liquefaction at one of the underused LNG plants there
• Pipeline to Greece and from there to Europe – this is a long shot but Greek companies are carrying out a detailed feasibility study.

Noble and its partners are evaluating export development options from Block 12 and are considering the feasibility of the first four options. If approval is given to proceed with one of these within the next 12 months then it should be possible to start LNG exports by 2020-21.

However, proceeding with a land based LNG facility would require more gas than what the Aphrodite gas field is known to hold now. Moreover, it would also require commitment to proceed with a second liquefaction train to make the project commercially viable for exports to the Far East. If this is to happen in the near future, it would require some gas to be committed to Vasilikos from Leviathan or to wait for the results of ENI’s drilling campaign. With the possibilities of Leviathan gas coming to Cyprus now been considered low, going forward would depend on ENI’s drilling results and a commitment by ENI to earmark about 200 bcm to Vasilikos, ie sufficient gas to supplement Block 12 gas and to guarantee a second liquefaction train.

FCNG is still a possible option for exports to countries in the region. It could also be combined with FLNG should more gas be found in a field once it goes operational.

Export to Egypt and liquefaction at one of the underused LNG plants there would be a challenge, not the least because with current liquefaction levels, the MoU with Union Fenosa, the LoI with BG and BG’s own LNG production, there will not be much capacity left for use by others.

This leaves FLNG. FLNG is a fast developing technology, with four projects already in the construction phase and ten more in the design stage. Noble and its partners are already known to be looking into implementing FLNG for Leviathan, targeting LNG exports to the Far East. Should this become a serious option then adopting FLNG for Block 12 would make sense. It is interesting to note that ENI is already well advanced in the use of FLNG as the main export option for its vast gas fields offshore Mozambique.

With the bulk of the gas in the leased Blocks expected to be in ENI’s and Total’s Blocks, serious gas exports from Cyprus will depend greatly on what these companies do.

Once ENI and Total complete their drilling programmes in 2016, it may take three more years before they assess the results and complete their development programmes. Given that whatever export options they choose it would take about four years to complete construction, the earliest they would be able to export gas from these Blocks is 2024, assuming no delays.

Potential markets

The key markets for the bulk of Cyprus gas are Europe and Asia, and more specifically Far East Asia. But costs and timing are critical factors.

Prices make the Far East a primary target, but with competition, increasing costs and timing are critical factors. An ever-increasing number of projects is targeting the Asian markets, seeking long-term sales contracts post-2020. With Australian LNG well ahead, East Africa and Russia planning to start exports by 2018 and North America soon after, East Med LNG may lose out on the Far East if it is not in a position to start exports by early 2020s.

China is actively securing long-term gas supplies, both by pipeline from central Asia, eg Turkmenistan, and as LNG imports. However, shale gas is expected to change China’s energy landscape significantly after 2020. After Ukraine, Russia is also looking more proactively to increase gas sales to Asia and the Far East.

But even in Asia the gas price scene is changing.

• The gas price of the 38 bcm China-Russia deal is estimated to be $10 per mmBTU, about the same as the Russian gas supplied to Germany and much less than the current price in Japan of over $15 per mmBTU.
• India is now in discussions with Russia for a similar deal and with the US for import of LNG.
• Japan has decided to go back to nuclear power, thus reducing its future LNG needs.
• Shale gas production in the US and elsewhere is increasing rapidly.
• Driven by the Ukraine crisis North America is granting many more licenses for LNG export, but much of it will be destined for the Far East.

All of the above are expected to have a strong influence in reducing gas prices in Asia in the longer term below current expectations, some believe to as low as $10-12 per mmBTU. As a result, in Canada some of the LNG projects still at the planning stage are being reconsidered.

Timing for the construction of LNG export facilities, and costs, are becoming critical issues. It will become increasingly difficult to secure attractive Far East LNG sales contracts from 2020 onwards. Those LNG projects that are delayed, or are unable to find Far East buyers soon, because of costs, may face increasing pricing and finance risks with time. This would leave Europe, but the low gas prices make this market a challenge for LNG exports.

Gas prices in Europe are low and are expected to remain low, ie $8-10 per mmBTU. According to a study by MIT, a land based LNG facility at Vasilikos will mean a combined production and liquefaction cost of about $7.5-8 per mmBTU. With an additional $1.5-2 per mmBTU for transportation to Europe and regas the total cost would be $9-10 per mmBTU.

Thus, if Cyprus gas is to be competitive in Europe the export options are limited. In fact FLNG may be the main option. As Leviathan may also be going for FLNG this may be the way forward for East Med. As FLNG combines production and liquefaction in one facility, unit LNG costs may come down by 30-40% in comparison to a land based facility.

The Ukraine crisis is again altering the balance in Europe, with the EU inevitably declaring its intention to embark on a new drive to become less dependent on Russian gas. East Med gas could now be seen as one such source. Cyprus being an EU member should help.

Given that Leviathan is now progressing fast into the production and export stage, most Israeli gas exports may be destined for the Far East. Lebanon is way behind and given current problems, it will take a long time before it is in a position to consider exports. This leaves Cyprus. Given the pace of developments most of its gas will be ready for exports at about 2024, thus risking missing the Far East markets and relying on Europe. Not a bad thing but prices will dictate development options. The main export option is likely to be FNLG.

Development of hydrocarbon resources in the East Med should be a catalyst to encourage countries in the region to resolve their differences and share the benefits – and thus achieve win-win solutions. Even though these resources promise to be substantial, they are small in global terms and if not developed carefully and timely the opportunity to realize substantial benefits may be missed. Whichever way these resources are developed, significant financial benefits for Cyprus will not materialize earlier than ten years from now.

Revenue management

At various stages the government of Cyprus has declared that profits will go into a national hydrocarbons fund with similarities to the Norwegian sovereign wealth fund. This will be used to stabilize the economy and benefit future generations. IMF is already involved in this process and it is one of the commitments undertaken by Cyprus in its bailout agreement with its international lenders. This will ensure transparency and its success.

Cyprus, an attractive destination for investments  

Given its location, its EU membership, its excellent relationship with the other East Med countries and security, Cyprus is an ideal location for companies to use as a base to service the East Med offshore hydrocarbons industry and installations. Lebanon and Lebanese companies can benefit from this and the lessons learnt in developing this industry and pick and choose the best practices developed in this process.

Link to source: http://www.mestrategicperspectives.com/2014/08/18/cyprus-energy-potential-export-options-revenue-management/

Lebanon delays oil & gas tender, breaks with Gebran Bassil’s past policies | MESP

Lebanon delays oil & gas tender, breaks with Gebran Bassil’s past policies

AUGUST 8, 2014 in LEBANON, LEBANON - OIL & GAS UPDATES, OIL & GAS

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Energy Minister Arthur Nazarian announced on August 08 that the deadline to submit bids in Lebanon’s first licensing round has been postponed from August 14, 2014 until “a maximum of six months from the date of the adoption” of the missing decrees. The tender has been repeatedly delayed due to the absence of two decrees, one defining offshore blocks and their coordinates and another defining the terms of the model exploration and production agreement.

Nazarian’s decision, most likely recommended by the Petroleum Administration, could be perceived as a break with past policies. Former Energy Minister Gebran Bassil’s dynamism and determination to meet deadlines – although commendable in many cases – have pushed him to officially launch the first licensing round in May 2013 despite the absence of those two decrees. The soundness of this decision has been questioned since. Frequent power vacuums within the executive branch (the country was run by a caretaker cabinet with limited powers for almost a year, from March 2013 until February 2014, and has been without a President since May 25, 2014) made it difficult to approve the two decrees. This has forced Lebanon to postpone the tender five times in less than a year, attracting mostly negative comments and reactions from analysts, industry stakeholders and media with each postponement.

And with each postponement, the inevitable question: Are companies losing interest? Interest in the exploitation of Lebanon’s potentially significant offshore resources is high, but with today’s decision to delay the tender until the decrees are approved, attention must be redirected to Lebanese authorities and their own determination (or lack thereof) to proceed with the tender. 

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Link to source: http://www.mestrategicperspectives.com/2014/08/08/lebanon-delays-oil-gas-tender-breaks-with-gebran-bassils-past-policies/#.U_SBQU0hbgE.twitter

Lebanon: The Oil & Gas Week, September 02, 2013 | Middle East Strategic Perspectives

Lebanon: The Oil & Gas Week, September 02, 2013

SEPTEMBER 1, 2013 in LEBANON, LEBANON - OIL & GAS UPDATES, OIL & GAS

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Lebanon – The Oil & Gas Sector: A Discussion with caretaker Energy Minister Gebran Bassil

Lebanon’s first licensing round is facing its first obstacle. The two decrees that are essential for proceeding with the tender (one delimitating offshore blocks and their coordinates and the other approving the model exploration and production agreement) have yet to be approved by the Council of Ministers. Only a few hours away from the September 2 deadline, we can safely say that the bidding period will be extended. The delay is regrettable, but it is not a major setback.

After animating local politics for months, oil and gas issues have recently been overshadowed by more pressing challenges, most of which are a direct consequence of the Syrian crisis. In such a context, Bassil struggled to maintain oil and gas as a top priority, despite a new advertisement commissioned by the Ministry of Energy & Water (highlighting the achievements of the MOEW between 2010 and 2013 and promising a resource-rich country by 2020), and frequent support from the political party he belongs to. FPM leader General Michel Aoun addressed journalists on 26/08 on the deteriorating political, security, economic situation in Lebanon, and devoted part of his intervention to talk about the urgent need to approve the two decrees. He went as far as accusing PM Najib Mikati of serving Israel’s interests by not convening the cabinet.

Bassil attempted a forcing in July by invoking possible Israeli threats to Lebanon’s resources. This created a momentum that was slowly eclipsed by other priorities. By announcing that he would call for a cabinet meeting to adopt the two decrees “if no cabinet is formed by mid-September”, Mikati has, willingly or – more likely – unwillingly, weakened the momentum, as we have anticipated in a previous analysis [see "Lebanon – First licensing round" in our August 05 report]. On the last week of August, it became clear the decrees will not be approved on time. Bassil multiplied his media interventions to leak the news and announce possible delays. His interventions focused more on the inconvenience of wasting time, money and credibility than on the imminence of Israeli threats and the need to counter them [See our comments on Bassil's conference invoking Israeli threats in "Lebanon – Israel" in our July 08 report].

Middle East Strategic Perspectives met Bassil on August 28. It was an opportunity to solicit clarifications from the Minister of Energy on a number of issues related to the oil and gas sector in Lebanon:

• The first licensing round

The September 2 deadline is approaching and there are no signs PM Najib Mikati is planning to call for a cabinet meeting to approve the two decrees that are essential for proceeding with the first licensing round.

If on Monday September 2 the two decrees are not adopted, then we will have to extend the bidding process. Even if the presidents (i.e. The heads of the executive branch, the President of the Republic and the Prime Minister) convened the cabinet at a later date, and by mid-September as PM Mikati has previously mentioned, it can still be said that the presidents are responsible for delaying the tender, and have unjustifiably cost Lebanon precious time. Had there been exceptional circumstances, we would have understood. But it’s not the case. The cabinet is able to meet and is entitled to adopt the two decrees. This is not a huge problem, but we are wasting time, money, credibility and the companies’ trust for no apparent reason. Unfortunately, they are trying to manage the oil and gas issue the exact same way everything else is being managed in this country. But we won’t let them. Is this affecting the companies’ initial enthusiasm? Let’s say it is a cause of concern. It might cause some reluctance, we don’t know yet how long it is going to take. What’s certain is that, as of Monday, September 2, we will effectively be wasting time. But such concerns will be dissipated once the process is resumed.

• The maritime border dispute

Deputy Assistant Secretary of State for Energy Diplomacy Amos Hochstein visited Beirut on July 17, 2013. Hochstein, his unit, and his team, fully understand and comprehend Lebanon’s position with regard to the maritime border dispute between Lebanon and Israel. There is an attempt to come up with a comprehensive solution, which takes into consideration border delimitation and natural resources, particularly shared resources. The delegation put forward some ideas. Some of these are indeed positive. Some others are not acceptable.

They are different compared to ideas put forward by former Special Coordinator for Regional Affairs at the State Department Frederic Hof. Compared to Hof’s initiative, we can even say they are better. Is this good enough? Not sure. This requires further discussion within the government. In any case, Hochstein fully grasps the issue. He is someone with whom we can talk.

• Export options, potential markets and regional cooperation

Export options are being discussed and we have our preferences. Cyprus is planning to build an LNG plant in Vasilikos, and we are often asked if Lebanon will be able to take part in such a project. In fact, we believe that we have better alternatives. Exporting our gas through pipelines gives us an advantage compared to Cyprus and Israel. Why should we opt for a longer or more expensive route? Their options are limited, which is why they need to come up with expensive alternatives. Lebanon, and those who invest in our oil and gas sector, will benefit from our country’s advantageous/favorable geographic location and political positioning. Unlike Israel for example, Lebanon does not face a regional boycott, and we’re not isolated from supply routes to Europe. We don’t need LNG terminals, we will export through pipelines. Part of the infrastructure is already available, like the Arab Gas Pipeline.

As for potential markets, we have so many options. Asia, Middle East, Europe, the Gulf. Our options are open, including through land. Turkey presents an interesting option, despite strained relations recently. That did not prevent a Turkish company from providing part of our electricity. Turkey is one of the options, as a transit route and as a potential market. It is a good option but not an obligatory route. Our advantage is that many options are available to us. If things don’t go as Cyprus wishes, regarding the construction of an LNG plant, maybe Cyprus could consider exporting its gas through Lebanon; we could come up with joint projects. Cyprus never explored this option. Maybe because we mismanaged certain aspects of our bilateral relations. Lebanon, for example, and due to Turkish pressure, dragged its feet and didn’t ratify the maritime border delimitation agreement with Cyprus.
[note MESP: The bilateral agreement was signed in 2007 but was never ratified. The agreement, concluded before a committee of experts had finished its work on defining Lebanon’s Exclusive Economic Zone (EEZ), was later rejected by Lebanon when it turned out it didn’t match the official borders, finally approved in 2010. This agreement served as an excuse for Israel to claim a segment of Lebanon’s EEZ, creating a disputed area of approximately 870 Km2. Had it been ratified by the Lebanese Parliament, Lebanon would have lost any legal grounds to reclaim what it now considers as an integral part of its EEZ].

Middle East Strategic Perspectives – Lebanon’s Oil & Gas Sector: Potential and Opportunities

Lebanon’s oil and gas sector is on track, despite possible, but minor, delays. The country’s first licensing round opened on May 2, 2013. The tender will provide an opportunity for international oil companies to enter a new market and to establish a foot in a promising gas-rich region. The prospect of exploiting potentially large resources has attracted wide interest from international oil and gas companies. 46 have made it through the qualification round and are eligible to submit bids. These resources, if commercially recoverable, will have strategic implications for the country. They will also generate new business opportunities, across multiple sectors.

Middle East Strategic Perspectives accompanied the emergence of the Lebanese oil and gas sector, and continues to provide its clients with a close coverage, including a weekly report available to the public and published on its website every Monday morning. MESP is now in the process of preparing a comprehensive report on the Lebanese oil and gas sector, focusing on its potential and opportunities, particularly for companies and businesses that are seeking to enter the Lebanese market. The report, entitled Lebanon’s Oil & Gas Sector: Potential and Opportunities, will provide an assessment of the sector, evaluating its strengths and weaknesses, and the opportunities it creates and can afford. The report is intended for oil and gas companies, law firms, local and foreign diplomats, consultants, service providers, bankers, and is designed to maximize their understanding of the business environment, and to anticipate and control the risks inherent to the nature of their work.

Click here for further details or to place your order. We also provide our clients tailor-made customizations. Don’t hesitate to let us know your preferences by October 15, 2013.

Previous issues of “Lebanon: The Oil & Gas week”:

Lebanon: The Oil & Gas Week, August 19, 2013
Lebanon: The Oil & Gas Week, August 05, 2013
Lebanon: The Oil & Gas Week, July 08, 2013
Lebanon: The Oil & Gas Week, July 1st, 2013
Lebanon: The Oil & Gas Week, June 24, 2013

Link to article: http://www.mestrategicperspectives.com/2013/09/01/lebanon-the-oil-gas-week-september-02-2013/