Lebanon: The Oil & Gas Week, November 25, 2013

Lebanon – The Oil & Gas Sector: A Discussion with Deputy Assistant Secretary for Energy Diplomacy Amos Hochstein

Despite obstacles, Deputy Assistant Secretary for Energy Diplomacy Amos Hochstein is keeping the momentum and pursuing his efforts to find a solution to the maritime border dispute between Lebanon and Israel, and control a major source of tension that has been scaring away foreign investors.

His latest mission in the region, which included a visit to Israel followed by a visit to Lebanon, coincides with renewed dynamism over oil and gas issues in Lebanon: There seems to be a realization that the process is not limited to the first licensing round – temporarily delayed as a result of the political deadlock – and that parallel work must continue. Caretaker Energy Minister Gebran Bassil, accompanied by members of the Petroleum Administration, visited Cyprus on November 7-8 to discuss the joint development and exploitation of common hydrocarbon fields and the maritime border dispute between Lebanon and Israel, in which Cyprus is implicated. Progress has also been registered lately in U.S. mediation efforts to resolve the maritime dispute.

Hochstein, who enjoys a very positive reputation among Lebanese officials, including at the Prime Minister’s Office and at the Ministry of Energy and Water, is determined to pursue his work. Middle East Strategic Perspectives met him on November 19 and discussed his mediation efforts and the emerging Lebanese oil and gas sector. Hochstein insisted on highlighting the potential that exists in Lebanon and the opportunities that come with it, if the country is able to ensure stability and a sound investment environment to exploit its resources. From our point of view, and beyond his mediation efforts to settle the border dispute, Hochstein appeared determined to demonstrate U.S. willingness to help Lebanon achieve its potential.

1) Could you update us on the latest efforts to settle the maritime border dispute? The echo seems positive in Lebanon, despite the publication of an article in Globes claiming Israel rejected the US plan.

Amos Hochstein: Diplomats sometimes speak in such a diplomatic speak that they are not clear, so I will say: The Globes article was false. I don’t know if I could be more clear. I’m always skeptical of articles that have anonymous sources. The article was filled with quotes from several months ago, I can tell you that as far as my work on this initiative I have seen no evidence on either side of the border that would suggest that this article has a shred of truth to it.

MESP: Almost immediately after the article was published, an anonymous source in the Lebanese Ministry of Energy denied the claims. That’s pretty interesting. It’s unusual for a Lebanese source to speak in the name of Israel.

Hochstein: I agree that it is quite interesting. It is also a sign of the times.

This is a very interesting area that Lebanon sees, and should see as a great opportunity for success. It could be a real game changer for Lebanon. This is an area where new resources have been identified as potential, if realized, and done so in an open, transparent and fair way, this could create not only new sources of revenue for the government but also jobs and ancillary industries. It is not a magic bullet but it could absolutely allow the country to focus on addressing some of its needs through economic activity. I can think of no other sector that shows as much promise, but it is all potential promise. People must understand what the advantages are, for the country and for its place in the region, for its place in the global marketplace. I don’t see other sectors providing as much opportunities. […] Also it means a different kind of behavior that will allow the country to realize its gains.

MESP: Certain Lebanese officials, including caretaker Energy Minister Gebran Bassil, made a comparison with your predecessor Frederic Hoff. It is often hinted that your plan is better than the one put forward by Hoff.

Hochstein: I’m continuing the work that Fred began. A lot of my work is based on the foundation that was laid by Fred. This is an area where we think that what stands before us is stability, peace and economic integration, and economic opportunity that Lebanon can achieve. So I don’t think its qualitative. It is not about square kilometers, it is not about lines, and specific proposals. It is about how do we get to a point that creates an investment climate that maximizes the potential for international oil companies, IOCs, to invest in Lebanon and in Israel, and for both countries to be able to flourish in the energy sector, side by side, even if it is not in cooperation, even if it is separately and each goes its separate way, but allowing for the conditions to emerge for both to succeed and not to see each other’s success or failure through the prism of what the other is doing. There are things that they can do separately, and there are things that they have to do while understanding the other side’s existence. […] And that’s a message I give on both sides of the border. This is an opportunity for both sides to gain.

MESP: So, your impression, are we close to an agreement?

Hochstein: I am going to continue working and visiting officials here and there in Israel. I think that there is an opening and an understanding of the need to move forward. I am here in a support role. I don’t have terms of my own. We are not putting on the table things to force both sides to do things. This is more Lebanon trying to move forward. As long as we can be helpful and support Lebanon’s effort, I will be here and that is not just related to what happens at the border. It also means what else can we do with having several decades of experience in this industry to support it. Again, the initiative is not just about the border, it is a broader sense of how can we support Lebanon’s efforts and the Ministry of Energy’s effort etc.

MESP: But the fact that they opened up Block 9 for bidding has created some tension on the other side of the border, so it is a little bit about the borders and lines.

Hochstein: I think the first thing that has to happen before a bid round is the government to take certain actions to make the bid round a formality and then we can talk about which blocks are up for bid or not. Right now, that map is just by the Petroleum Authority, the government still has to take some action and my hope is not to get involved in domestic politics. I know enough about Lebanon’s politics to stay away.

But, going back to what I said earlier, these gains, across the board, will happen when the country comes together, when the leadership comes together, to work on behalf of the country as a whole. That means the cabinet taking the appropriate decrees to launch the bid round. When will that happen? I don’t know. We will tackle the problems as they come up. We will try to anticipate a few of those; that is part of the game that I play, and that is our team’s job. We are not going to be able to anticipate all of them. Those that we prepare for the most will probably not happen, and those that we don’t think about will pop up. But that’s how we are going to move forward. So again, I am not trying to avoid your question. I think that there is a tendency to focus on the small moments in time of what causes the tension and instead I am trying to focus on what creates an opportunity.

2) What is the strategic significance of Eastern Mediterranean resources for the US? The amount of oil and gas in the Eastern Mediterranean is interesting for countries in the region, and their small populations, but modest on the global scale. Would it be correct to say that the US perceives these resources primarily as an opportunity to stabilize the region?

Let me take a step back. Former Secretary of State Hillary Clinton created an energy bureau inside the State Department for the first time. I think that alone is an indication of the evolution of thinking in the United States about energy as a global issue, no longer just a domestic issue, but rather looking at energy as a global commodity and global issue that brings together several aspects and parts of our foreign policy and national security.

Whether it is the fact that sometimes natural resources are found in complicated areas of the world that are at crosshairs and are a sensitive points of our foreign policy, whether it is economic development (if you want to create and expand a middle class, they need to have access to reliable and affordable sources of energy and without that you cannot expand that middle class), our climate approach and environmental impacts are tied to energy use. All these questions are part of our interest in the world and part of our foreign policy. So, whether it’s here in the Eastern Mediterranean where there is a lot of opportunities to expand that middle class, to build economic activity in a positive way, and where if we can engage early we can affect how they are done financially, in a transparent and fair way, making sure that these resources are exploited safely and securely and that their benefits reach all peoples and countries in this region. That’s a great potential. I don’t see my involvement, or our involvement as a government here in Lebanon as an involvement in Lebanon. We see Lebanon as part of this region. This is an exciting time in the Eastern Mediterranean. It is part of the solution, it doesn’t have to be part of the problem. It can be part of the solution. I think and hope that early engagement by us and by others can drive that towards cooperation, prosperity and stability, and ensure that these resources are not used for conflicts.

Energy has that aspect to it, historically, and in certain parts of the world, where it has not been used for the benefit of all people in those countries and I think we’re trying to learn from those mistakes and to work with governments to see how best they can be utilized to affect the people of the countries in the region.

3) Is it true some American companies are losing interest in the bid? Marathon and Anadarko more specifically. Can you confirm that?

I can absolutely send you to Marathon and Anadarko and I am sure they will give you an answer. I think the advantages of being in my position is that I don’t speak for them. What is great about the US and the energy sector is that we are growing in a transformative way. At this point, the United States is really in an energy revolution in both oil and gas, but we have a true private sector in a way that does not exist in most of the world. Our energy companies are truly private and rarely seek my guidance on contracts to sign.

4) We have heard that there is an interest in block 9, even among American companies. Would you encourage these companies to bid for rights in block 9?

Let me answer it this way: I would hope that American companies, if they are interested, are involved in the energy sector in Lebanon. I think that would be great for Lebanon. I think it would be great for American companies and I think it would be good for the region. I think, not just because I am an American, but American companies have been leaders in this industry and have a record of doing things in a very professional, transparent way, with great expertise and parting their expertise onto populations with which they are working, to create a technical expertise among the people in the countries that they operate in.

I would urge them to use the appropriate caution that they use anywhere else, and I think that the more actions are taken in Lebanon that would demonstrate stability – and stability is not just the security situation, it is the investment climate – I think that Lebanon will see that if those steps are taken, as a government, as a country, to ensure that stability across the board, on all aspects, I think they will find that the interest by American companies will grow and will intensify.

5) Beyond the financial and technical aspects, on which basis are American companies selecting their partnerships for the first licensing round? It is interesting to see that Exxonmobil is partnering with Rosneft for example. (Some, in Lebanese media, have interpreted this as a sort of American-Russian umbrella for stability in Lebanon)

I think when things seem rather complicated and conspiratorial they usually are. The role that we play is to try and ensure stability, to a degree possible, in the global markets, to ensure that resources are used for stability purposes and for prosperity. We do not get involved in the contracting side and pairing up companies.

Exxonmobil and other American companies are doing similar actions, which is partnering with other companies. It is not unusual, it’s all over the world in this industry. […] So I wouldn’t read too much into these partnerships, except that these are companies that feel comfortable working together, and bring to the table for any given investment what they think they need together to win the bid. I would almost always caution against seeking or seeing governments action in steering companies towards contracts, especially in the United States where I can tell you we never do that.

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Lebanon’s oil and gas sector is now on track, despite the current and temporary political deadlock. Three-dimensional seismic studies conducted over 70% of the country’s exclusive economic zone show prospectiveness is high. The legal and institutional frameworks to carry out exploration activities have been established, allowing the Ministry of Energy and Water to announce the launching of the country’s first licensing round for offshore oil and gas exploration in May 2, 2013. Fifty-two companies had previously sought to qualify and forty-six were found eligible to bid, including some of the biggest names in the industry, before the tender was put on hold due to the absence of a functioning government.

The emergence of a new oil and gas sector brings with it immense opportunities. The vast interest it was able to attract, years away from the first drilling, exceeded the expectations of even those that have been shaping it, in public and behind the scenes, for years. Yet, this interest is tempered by the challenges encountered when dealing with an emerging sector, in a new environment, characterized by a continuously evolving geopolitical landscape and a complex political system exposed to foreign influences.

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

Our next report will be published on December 9, 2013.

Previous issues:

Lebanon: The Oil & Gas Week, November 11, 2013
Lebanon: The Oil & Gas Week, October 28, 2013
Lebanon: The Oil & Gas Week, October 14, 2013
Lebanon: The Oil & Gas Week, September 23, 2013
Lebanon: The Oil & Gas Week, September 16, 2013