Lebanon: The Oil & Gas Week, September 23, 2013

Lebanon – Local politics:

The Lebanese political class continues to show signs of confusion when dealing with oil and gas issues. Clearly, the topic has not been mastered yet, which to a certain extent explains current delays. For political leaders, the stakes are high: controlling the sector opens the way to governing the country. Two decades ago, mobile phone licenses were distributed, under Syrian occupation, among the most prominent parties at the time and the business community that orbited around them. International partners adapted to the local environment and business thrived. A similar scenario is expected in the oil and gas sector. The broad picture is already established, but the details have not been fully elucidated. The main players are known (usually keeping a low profile), the rest are still trying to get a stake (the more vocal ones). What has not been finalized yet is partnerships with international companies and, even more tricky, an agreement on how revenues will be shared. This is the hard part because it may involve a reevaluation of the entire political system and may be the trigger for reviewing the increasingly moribund and criticized constitution.

In the meantime, the struggle to ensure a stake continues, particularly for (though not limited to) those who are not yet guaranteed a place around the table. Supplementing this struggle is a set of rhetoric, often populist in nature, and rarely accurate, but that is beside the point. The objective of the rhetoric is only meant to rally popular support in order to consolidate one’s status in this power struggle. In this sense, when the caretaker Energy Minister raises alarm bells and warns that Israel now has the possibility to siphon off Lebanon’s gas, he actually means the two decrees must be adopted as quickly as possible to avoid disrupting the tender. This explains why the political class was not alarmed by Bassil’s warnings. Speaking to a journalist from Lebanese daily Assafir on 19/09, caretaker PM Najib Mikati downplayed the risks of postponing the adoption of the two decrees, thereby implicitly dismissing Bassil’s warning that Israel might in the future steal Lebanon’s resources. Bassil maneuvered, but was not successful. Bassil is expected to continue his lobbying. As (caretaker) Minister of Energy, it is also his responsibility.

After a brief respite, Bassil, and his political party, the Free Patriotic Movement, resumed their offensive. Speaking after the weekly meeting of his Change and Reform parliamentary bloc on Tuesday 17/09, General Michel Aoun devoted a considerable part of his intervention to oil and gas, despite other pressing issues. Three observations can be made in this regard: (1) Gebran Bassil is able to impose his agenda and priorities. This is an indicator of his weight within the party; (2) Other MPs are playing a rather passive role. They are either unable or unwilling to do more, although they comply with their leader’s broad policies; (3) The FPM is on a campaign to strengthen and promote Bassil’s leadership, ahead of the formation of a new cabinet. He is always present during important meetings, including with the Saudi ambassador (on several occasions), a major player in local politics. Initial objections to his participation in the next cabinet seem to have dissipated, although there is still a strong opposition to give the Ministry of Energy and Water to him or any other FPM member. Bassil was also present during a meeting with Hezbollah officials on 18/09. The Minister demanded a more vocal support from his allies, particularly for his call to approve the two oil and gas decrees. But, once again, Hezbollah was able to snatch more meaningful commitments from the FPM than it is able to provide them. Both parties confirmed they will accept nothing less than (1) a direct Hezbollah participation in any new cabinet (The March 14 alliance was strongly opposed to Hezbollah’s participation in the government. This opposition seems to be dissipating now), and (2) a third of the ministers + 1 (which would give them and their allies veto powers and allow them to cause the cabinet to fall if all their ministers resign).

The FPM was not able to seize an equally strong commitment from Hezbollah to what it regards now as one of its utmost priorities, and that is keeping Gebran Bassil as Minister of Energy and Water in the next cabinet. Does this reflects different priorities? Different approaches? Or a certain discontent as to how Bassil and the FPM have been managing the sector? One issue of contention has been the number of blocks to open for bidding. Hezbollah’s Shiite ally, Speaker Nabih Berri, prefers opening all 10 blocks for bidding in the first licensing round, as a means of establishing and confirming Lebanon’s rights in the face of Israeli ambitions in its EEZ. The fact that only 3 blocks run along the Lebanese-Israeli border suggests that there might be other considerations, unrelated to Israel, that drives Berri to call for making all offshore blocks available for bidding.

Lebanon – First licensing round:

FPM leader General Michel Aoun denounced on 17/09 the “conspiracy” to prevent Lebanon from extracting its resources. Brushing off a relatively common fear among the Lebanese who believe that the presence of natural resources will attract unwanted foreign attention and possibly wars, the FPM leader argued that gas is a factor of stability. He established a direct link between extracting gas and stability. According to Aoun, the big IOCs, which will extract our gas, belong to powerful countries, with a recognized influence in this part of the region, particularly on war and peace decisions. These countries will therefore have a vested interest in preserving Lebanon’s stability.

By saying that, Aoun, and by extension his political party, parliamentary bloc, and ministers (including Gebran Bassil), established regional political influence as a quasi-official parameter for selecting the winning oil and gas companies. While acknowledging the importance of this factor, it still raises a few questions: (1) how fair is it to companies, which may very well fulfill all requirements, but do not belong to “powerful” and “influential” countries in this particular region?; (2) What are the countries that are influential enough and are able to ensure Lebanon’s stability? Given that the Lebanese themselves are too divided to agree to agree on a common foreign policy, each faction having its own foreign sponsor, will they be able to agree which countries, and companies, would be able to ensure their country’s stability?

Lebanon – First licensing round:

As we have mentioned in our previous report [see “Lebanon – Country risk” in our September 16 report], the press is filled with reports that foreign companies are frustrated by delays and reconsidering their decision to participate in the first licensing round. The leaks, we noted, are most likely originating from the Energy Minister’s entourage, and are part of a campaign to make a stronger case for his lobbying to get the two decrees approved and avoid bid delays. It appears the leaks are possibly also originating from one of the geological surveyors. The company, which aims to sell its data, is also circulating information that companies are losing interest. A certain “financial anxiety” may have pushed it to synchronize its leaks with the Ministry of Energy and Water’s efforts to push for the adoption of the decrees and proceed with the bid.

Lebanon – Beirut Bar Association:

Local law firms have taken the lead among private sector institutions in getting closely involved in the oil and gas sector, by providing legal services to local public institutions and later on to local and foreign companies interested in the sector. The Beirut Bar Association is also keeping up with developments, despite, and maybe because of the lack of a substantial experience in such a sector. It established its first Committee for Energy and Water in May 2013 (headed by Toni Issa, and of which Gaby Daaboul – one of the six members of the Petroleum Administration, in charge of legal affairs – is a member and coordinator). The Committee is planning a series of activities in 2013 to train lawyers and legal experts on the various aspects related to the sector, including understanding energy markets, global demand and prices, related technology, negotiating and drafting contracts, joint venture agreements etc.

Among the local law firms that are either working closely on the sector or have established a direct relationship with oil and gas companies: Abou Jaoude & Associates Law Firm; Al-Jad Legal Services; Alem & Associates; Badri and Salim el-Meouchi Law Firm; El-Khoury Law Firm; Kabalan Law; Kobeissi & Frangie Attorneys and Counselors at Law; Kouatly & Associates; Law Office Nabil Abdel Malak; Maalouf Ashford & Talbot; Matar Law Firm; Moghaizal Law Office; Noueihed Law Firm; Obeid Law Firm etc.

Most of these law firms will be present in the upcoming Lebanon International Oil and Gas Summit, which will be held in Beirut, in December 2013. A parallel meeting for law firms was initially planned on the side of the conference but the idea seems to have been disregarded.

New Report: Lebanon’s Oil & Gas Sector: Potential and Opportunities:

MESP is in the process of preparing a 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.

For more information, or to order your copy, click here.

Middle East Strategic Perspectives – Lebanon: The Oil & Gas Week:

Our next report will be published on October 14, 2013.

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

Lebanon: The Oil & Gas Week, September 16, 2013
Lebanon: The Oil & Gas Week, September 09, 2013
Lebanon: The Oil & Gas Week, September 02, 2013
Lebanon: The Oil & Gas Week, August 19, 2013
Lebanon: The Oil & Gas Week, August 05, 2013