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

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 1^st, 2013
Lebanon: The Oil & Gas Week, June 24, 2013