Lebanon’s chances of building a successful oil and gas industry
Lebanon’s chances of building a successful oil and gas industry in the near term have taken a massive turn for the worse. Over the past year, crude oil prices have dropped by 55 percent while natural gas prices dropped approximately 30 percent. Analysts expect the slide to continue and the downturn to remain for several years to allow for the re-adjustment of supply and demand. This leaves margins squeezed for offshore production projects.At the same time, Cypriot offshore prospectives are turning gloomy. Italian major ENI failed to find hydrocarbons after drilling a well in Block 9. This is especially discouraging, since Block 9 was the most sought after block during Cyprus’ second bid round. It is adjacent to Lebanon’s maritime borders and lies in the same basin. More bad news for Cyprus emerged a few days ago when its energy minister, George Lakkotrypis, announced that Total, the French major and operator for Blocks 10 and 11, had failed to find any geological structure worth drilling and was contemplating pulling out of Cyprus.Even more significantly, Israel, which is the only producer of offshore gas in the region, has realized that East Med Gas is more of a regional than international player. It has begun to secure the regional export market by negotiating long-term agreements with Jordan and Egypt to supply them with gas from the Leviathan field. This would mean that in the event that Lebanon becomes a producer, it would need to find other markets to export its gas. At the same time, Israel has reached out to Cyprus to work on a unified gas strategy and is in discussions with Greece and the EU for a possible pipeline to Europe. The combination of these recent events, along with ongoing political instability, in part due to the presidential vacuum since May, has, at the least, wiped out any enthusiasm that may have been evident during the prequalification stage. It may also have closed the chapter on a Lebanese hydrocarbon industry for years to come.This doesn’t mean that, had the process begun when it was initially scheduled to, Lebanon would be on its way to being an oil and gas producer. There was never any certainty that hydrocarbons do exist as the Cypriot experience shows. Back in 2013, oil prices were close to all-time highs and the Levantine basin was a major play for the oil majors. They prequalified, formed a consortium and began PR work in a clear sign that they intended to participate in the Lebanese bid round. This in itself would have given Lebanon a much needed economic boost with foreign direct investment and employment, and provided it with its best chance to efficiently explore for hydrocarbons. None of Lebanon’s neighbors had received the same interest from oil majors. Cyprus had to wait for its second bid round before attracting one. Even if these companies still have interest today, they will ultimately demand better terms and conditions from the Lebanese state to reflect the new fiscal and geological reality.The reasons behind the constant delays in the bidding over the past two years have never been fully explained. They are attributed to two outstanding decrees, but the Cabinet meets on a regular basis and all political parties have publicly indicated interest in advancing the oil and gas industry. So what exactly is the problem? It is time for the Lebanese government to explain to its citizens why the best economic opportunity in decades may very well have been squandered away.
Author: Samer Abbas Khalaf is the director for Africa & Middle East for oil and gas consultancy GPB Neftegaz Services in the Russian Federation.
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