Political standstill stifling Lebanese offshore prospects

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Despite the bullish combination of the successful exploration efforts of its neighbours and significant interest among IOCs, Lebanon’s political wrangling continues to hamper E&P efforts in the country’s offshore.

LEBANON’S nascent oil and gas industry continues to be thwarted by the country’s ongoing presidential vacuum and political polarisation, which appear no nearer to any resolution.

Since the discovery of vast oil and gas reserves in the Levant Basin in 2010, seismic surveys have led the Lebanese Ministry of Energy and Water to estimate that there are 95 trillion cubic feet (2.69 trillion cubic metres) of natural gas of gas in its southern waters and 865 million barrels of oil in its northern offshore.

Projections have been made that Lebanon could claim access to more than 30 tcf (849.6 billion cubic metres) of this natural gas and 660 million barrels of oil but the country’s neighbours have been swifter to instigate exploration activity.

Israel, in particular, has pushed on with developing its flagship Tamar and Leviathan gas fields, and the commercial viability of Cyprus’ Aphrodite field was declared last week, but Lebanon has struggled to capitalise, owing chiefly to a failure by its government to pass two decrees crucial to managing the country’s first offshore licensing round.

The tender for its first offshore auction has been postponed on multiple occasions, the latest of these being in August 2014.

No deadline for pushing ahead is currently in place, despite general interest in Lebanon’s offshore sector. This was demonstrated when a total of 46 international oil companies (IOCs) were qualified in April 2013 by the Lebanese Petroleum Administration (LPA) to enter the first round of licensing to explore Lebanon’s offshore resource potential. The LPA approved 12 major IOCs as operators for the licensing round, with the likes of Anadarko Petroleum, Chevron, Eni, ExxonMobil, Inpex, Maersk, Petrobras, Petronas, Repsol, Shell, Statoil and Total showing the level of international attention commanded by Lebanese waters.

 Political disunity

The Cabinet has been tasked with approving laws and decrees after a failure by parliament to agree on a president since the late president, Michel Sleiman’s term ended in May 2014. But feuds have made it almost impossible to agree on mechanisms for reaching decisions, including the two crucial hydrocarbons sector decrees. One decree requires the government’s endorsement of the demarcation of the 10 offshore blocks in the exclusive economic zone; the other, setting the terms of a draft on the Exploration and Production Agreement, would establish a revenue mechanism and a tax policy for the embryonic hydrocarbons sector.

Nazarian admitted in March 2015 that he had “no idea” when the issue would reach the forefront of the Cabinet’s agenda. Some analysts have argued that the lowering of global crude prices since Lebanon began to seriously contemplate its offshore resources has added to the sense of delay.

Carole Nakhle, director of consultancy Crystol Energy, said recently that crude price falls “weaken the bargaining power of governments – especially those where exploration hasn’t begun”. Quoted on June 16 by Al Jazeera, she also pointed out that “companies become selective in terms of allocating limited resources”.

Glimmer of hope

Despite the political stasis, Lebanon’s oil and gas sector is not at a complete standstill. The Lebanese government signed a three-year deal with Norway earlier this year. This will enable Norwegian experts to provide customised technical training, joint conferences, and delegation visits to Norway for MPs, civil society organisations and the media, with the aim of strengthening accountability and transparency within the sector.

The LPA has also used the delays to improve its draft exploration and production agreement and to establish stronger links with government ministries. Furthermore civil society groups and industry watchdogs have been able to begin widening the popular understanding of the oil and gas sector and its potential benefits and costs to Lebanon, bringing forward discussion on aspects such as past political corruption and the creation of a sovereign wealth fund to boost financial transparency.

Nazarian said in late May that he expected exploration to launch relatively speedily once the licensing round takes place, given the large volume of data already available to IOCs interested in investing in Lebanon.

One consolation, perhaps, is that multi-year delays for oil and gas projects in emerging markets are usual.

 By writes Kevin Godier for Newsbase.