[Oil & Gas Updates]: Weekly Roundup 21/01

Lebanon – Russia:

Lebanese President Michel Slaiman headed to Russia on 19/01 for a 5-day visit. Slaiman is scheduled to hold talks with President Vladimir Putin and Prime Minister Dimitri Medvedev, focusing on the situation in the middle east and the repercussions of the Syrian crisis, in addition to bilateral cooperation, including in the field of armament, energy and the exploitation of offshore resources. Several Russian companies are interested in investing in the petroleum sector. Russia may also seize the opportunity to play an even larger role: With the breakdown of successive initiatives to settle the maritime border dispute between Lebanon and Israel, Russia, which enjoys very good relations with both countries, is in a position to contribute to settle the dispute.

Lebanon – Security of offshore resources:

Lebanese President Michel Slaiman paid a visit to South-Lebanon on 18/01, during which he visited the headquarters of the UNIFIL in Naqoura, and inspected Lebanese army troops stationed south of the Litani river. The President insisted on a defense strategy that includes protecting the country’s offshore resources, and said that the Lebanese Army has been asked to devise one, although it lacked the necessary means to fulfill such a mission at the moment. A $1.6 billion plan to re-equip the Army over a period of 5 years was approved by the government in September 2012. It includes boosting the Lebanese Navy’s capacities and providing it with the means to monitor and control its territorial waters and to protect its maritime borders. But, in the meantime, Slaiman said, Lebanon can benefit from the resistance’s (mainly represented by Hezbollah) weapons. Hezbollah TV channel Al-Manar welcomed the speech, and aired short clips supporting the Lebanese army. Earlier this month (03/01), Hezbollah leader Hassan Nasrallah urged the government to adopt a national strategy to protect Lebanon’s oil and gas wealth and declared that his group would be willing to do so if the State does not rise up to the challenge [see “Lebanon – Internal politics” in our 07/01 weekly roundup]. The terrorist assault on an Algerian gas plant on 16/01 is a reminder that energy facilities remain a vulnerable target. It prompted Libya and Egypt to step up security around their own oil and gas installations, and should serve as an additional warning for Lebanese officials to address the issue of protection of offshore gas fields, beyond simple rhetoric.

Israel – Security of offshore resources:

Defense News has reported on 14/01 that Israel is planning to buy four offshore patrol vessels to defend its still-contested Exclusive Economic Zone (the northern part of which, according to Lebanon, extends a few kms into the Lebanese EEZ) and offshore gas installations. According to the report, the ships will most likely be bought from South Korean companies, Hyundai and/or Daewoo, for an estimated $400 million. This procurement is part of a plan to boost the Israeli navy’s capacities, approved by Defense Minister Ehud Barak and IDF Chief of Staff Benny Gantz in July 2012. Up until recently, the naval arm of the IDF had been relatively neglected, compared to the Air Force and the Army. On 29/05/2012, a senior Israeli military planner told Reuters “we will do our best, but without a major boost to our capabilities, our best will not be enough.” On 06/10/2012, Hezbollah sent a drone which flew hundreds of kilometers over Israeli waters and lands before it was intercepted by the Israeli army.

Lebanon – First licensing round:

Energy Minister Gebran Bassil confirmed once again that the first licensing round will be launched on 02/05 and expressed confidence that the first contract can be signed by 2014. If the dates of the first licensing round are maintained, it will be a significant victory for Bassil, ahead of the parliamentary elections in June 2013. In addition to natural gas, Bassil also said that 3-D seismic surveys are showing potential oil reserves. His remarks came on the sidelines of the World Future Energy Summit held in Abu Dhabi on 15-17/01, during which he sought to promote investments in Lebanon’s emerging oil and gas sector, and assured investors that preparations and legislation related to licenses to drill have been completed. According to Bassil, who also took part in the ASPA summit with Energy Ministers and senior officials from South American and Arab countries, more than 30 major companies from different countries have shown interest in Lebanon’s first licensing round, with many already forming consortiums in accordance with the Lebanese hydrocarbon law which requires bidders to form consortiums of at least three companies to apply for an exploration license. The UK government, through its Trade and Investment department, is encouraging British companies to register an interest in oil and gas exploration in Lebanon’s EEZ, qualifying the opportunity type as “major projects”. The US does not seem to share the same enthusiasm. According to the 14/01 edition of Lebanese daily Assafir, the American administration did not give the green light yet to American companies to participate in oil and gas exploration in Lebanese waters, despite frequent overtures from the Lebanese side, particularly from Energy Minister Gebran Bassil.

Lebanon – China:

According to some information, China has decided to expand its embassy in Beirut, following an unprecedented growth in bilateral trade. Lebanon is increasingly perceived by China as a gateway for its products to other Arab markets. If confirmed, it would indicate that China is positioning itself in case of a regime change in nearby Syria. In addition, we believe the move is also partly motivated by Chinese interest in Lebanese offshore resources. China has indicated in the past, through its ambassador Wu Zexian, its willingness to be involved in gas exploration. According to our information, Chinese company Sinopec is interested in Lebanon’s first licensing round.

Lebanon – Maritime border dispute:

Lebanese daily Annahar’s diplomatic correspondent Khalil Fleyhan who often reports from inside the Lebanese Ministry of Foreign Affairs, has written a piece on 18/01 criticizing US bias against Lebanese interests. Fleihan’s report can be perceived as reflecting the general mood at the Ministry. He gave two recent accounts to back up his claims and to prove that whenever the US intervenes to address an issue that concerns Lebanon, it usually does so at its (Lebanon’s) expense. One of these is related to US mediation efforts to settle the maritime border dispute between Lebanon and Israel. Fleyhan criticized UN reluctance to establish a maritime equivalent to the blue line that separates Lebanon and Israel inland, and seemed to blame it on American pressure. He concluded by saying that there doesn’t seem to be an end in sight to the border dispute because none of the major powers has given any guarantee that Israel would end its “maritime occupation”.

Lebanon – Ministry of energy:

Few Lebanese ministries are as crippled as the Ministry of Energy and Water. Few are as resistant to change, despite the enormous challenges it faces. Its past record, since the early 1990s, whether in the electricity sector or, to a lesser extent, in the management of water resources, does not augur well for the future, unless serious reforms are introduced. In an article published in the pan-arab daily Al-Hayat on 18/01, energy expert Adnan al-Shahhal calls for splitting the Ministry of Energy and Water into two separate ministries. Shahhal does not see any link between petroleum and water resources and power generation, and argues that a proper organization of the sector calls for the establishment of a ministry that is focused solely on energy. Although the link between petroleum and water resources is not exactly non-existent as he claimed, Shahhal does have a point that is worth discussing at the level of the government, given the enormous difficulties that characterize the management of water resources and power generation in Lebanon. Appointing a State Minister in charge of managing water resources and power generation would allow the Energy Minister to focus on energy-related affairs.

It might also be worth to follow the Cypriot example and whether it is going to evolve or not, and in which direction (Cyprus does not have a ministry of energy. The Energy Service of the Ministry of Commerce, Industry and Tourism has the overall responsibility of Energy in Cyprus).