Lebanon: The Oil & Gas Report, February 10, 2014

Lebanon: LNG import tender & FSRU tender confirm business as usual at the MOEW

Thirteen companies responded to the Ministry of Energy and Water’s tender, launched in December 2013, to import liquefied natural gas. The deadline for placing bids, set on January 20, 2014, was respected. The Ministry will start negotiations with the five companies that submitted the best offers. The winner will be awarded a 12-year supply contract. Lebanon intends to start importing around 1.2 mtpa of LNG by 2016, expected to reach 3.5 mtpa by 2022. The tender is part of a project comprising a Floating Storage Regasification Unit (FSRU) and the import of LNG to generate power, instead of fuel, as is currently the case, in line with the measures proposed by the Ministry of Energy’s policy paper for the electricity sector. This will cut the country’s energy bill and save an estimated $1 billion per year.

The Ministry of Energy and Water also announced that four companies, out of the 13 that pre-qualified, submitted bids in the FSRU tender, launched in April 2013. The winner was originally expected to be announced end of 2013, but the deadline for placing bids was extended until January 27, 2014 due to incomplete bids.

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Lebanon: Developing the oil and gas sector through the formation of future workforce: AUB and MOEW sign MoU

Caretaker Energy Minister Gebran Bassil, and the President of the American University of Beirut, Peter Dorman, signed a Memorandum of Understanding on February 6 in presence of the members of the Petroleum Administration, to promote exchange of expertise, capacity building, training opportunities, and sharing of research and data. The agreement is part of the Ministry of Energy’s efforts to strengthen cooperation with local universities and contribute to the development of a petroleum sector through the formation of a future workforce.

The American University of Beirut offers a degree in Petroleum Geology and is considering an advanced Master’s degree in Energy Studies and a degree in Petroleum Engineering. On 26/03, it announced that it has received a $1.7-million reservoir simulation software. ECLIPSE and Petrel, as these applications are known, were donated by Schlumberger Information Solutions, and will allow engineers to model oil and gas fields and reservoirs on their computers in order to predict the flow of oil or gas through layers of porous rock.

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Israel: Woodside Petroleum on its way to acquire 25% of Leviathan… implications for Shell in Lebanon?

More than 14 months after it was first announced, Woodside Petroleum signed a memorandum of understanding with the Leviathan partners on February 7 to acquire a 25% stake of Leviathan, for an initial $850 million (and could end up paying $2.7 billion for the right to exploit the resources along with the other owners). The deal is expected to be finalized by the end of March 2014. A preliminary, non-binding, agreement negotiated in December 2012, provided that the Australian company would purchase 30% of Israel’s largest discovered gas field for an initial $696 million. But negotiations dragged on, largely because of Israeli indecisiveness regarding the gas export policy (which was finally approved, setting aside 40% of reserves for export), and Delek Group’s insistence that Woodside should not limit export options to LNG. The Leviathan partners are in fact already negotiating possible deals to sell gas to neighboring countries via pipeline. Another point of contention was the amount to be paid by Woodside. Since the first agreement, in 2012, Leviathan’s reserves were revised upwards. It is now estimated to contain around 19 TCF of natural gas, compared to an earlier assessment of 17 TCF, which explains why Woodside had to pay an extra $154 million for a smaller stake at the end.

Once the deal is finalized, Woodside will own 25% of the rights of the field, Texas-based Noble Energy will still hold the largest part with 30%, Delek Group’s Avner Oil & Gas and Delek Drilling will each get 16.93%, and Ratio Oil Exploration 11.12%.

Note that Shell, one of 12 companies to qualify for Lebanon’s first licensing round as operator, holds a 23% stake in Woodside (though it has progressively reduced its stake and might sell the remainder of its interest in the Australian company). Lebanon adheres to the Arab League Boycott of Israel, and companies perceived as contributing to the military or economic development of Israel must be boycotted. Enforcement throughout the years has been selective. But a strict interpretation of Lebanese regulations might cause a few problems for the Anglo-Dutch company if it intends to do business in Lebanon.

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Eastern Mediterranean: naval incident in Cyprus’ EEZ

A Norwegian exploration vessel, carrying out work off the Cypriot coast, near block 7, parts of which Turkey claims fall within its maritime zone, was expelled by a Turkish frigate on February 1. The ship was conducting studies for French company Total, which was recently awarded a 3-month prospection license, starting February 1, in block 10 and parts of blocks 6, 7 and 11. Turkey’s latest muscle flexing in the Eastern Mediterranean (which includes the procurement of a Landing Platform Dock for around $1 billion, considerably expanding its navy’s capabilities), must be seen as the military side of a policy that seeks to impose Ankara as a main actor in the Eastern Mediterranean and Turkey as the major export route for the region’s gas.

We don’t expect the situation in the Eastern Mediterranean to escalate but the presence of oil and gas resources in the region has triggered an arm race, and further highlights the importance of ensuring security.

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Lebanon: cabinet formation, the Ministry of Energy and the “Christian factor” explained

The Ministry of Energy and Water continues to be at the heart of the debate. While it may seem to be the reason that keeps delaying government formation – and for a long time it indeed was – it now also serves to conceal other power struggles. President Michel Slaiman’s term expires in May 2014. According to the Lebanese Constitution, should the Presidency become vacant, the Council of Ministers exercises the powers of the President by delegation. At the moment, nothing indicates that the presidential election will be held on time, especially that Syria is scheduled to hold a presidential election in June, and the situation in Lebanon is directly related to how events in Syria unfold. On the contrary, if the events of 2013 are any indication (inability to form a new government; inability to hold parliamentary elections; inability of the Constitutional Council to meet to look into challenges submitted against the Parliament’s decision to extend its own mandate; inability to appoint a new Army chief to replace General Jean Kahwagi who reached retirement age in September. His mandate was extended for two years; inability to hold parliamentary sessions etc.) the trend seems to point towards a persistent stalemate.

In a country that has quasi-religiously adhered to a consociational formula and where the highest public offices are allocated to sects in order to appease the different religious communities that make up the Lebanese society, the fact that the Maronite Christian President’s powers could be delegated to the Sunni-dominated Council of Ministers in case the Presidency became vacant in May, is a matter of the highest importance, which threatens to destabilize the country even further. This is particularly the case if the two largest Christian parties (the Free Patriotic Movement, FPM, and the Lebanese Forces) are not represented in the cabinet (each for its own reasons).

It is through this angle that, what we could refer to as the Christian factor must be perceived. This also explains FPM’s insistence to keep the Ministry of Energy and the Ministry of Telecommunications, to have a say and secure some kind of influence in the country after it has been denied sovereign portfolios (interior, defense, foreign affairs and finance) for years, despite having the largest Christian bloc in Parliament. It is only after the Ministry of Energy took a whole new dimension that the different political factions decided to apply the principle of ministerial rotation, eyeing in particular the Ministry of Energy. From a Christian perspective, there is a risk that, come May, the Presidency would be vacant, and its prerogatives delegated to a Council of Ministers in which Christian parties have modest portfolios. It was only then that the Ministry of Foreign Affairs was proposed to the FPM, in exchange for the Ministry of Energy. The offer was considered insufficient.

This is what prompted caretaker Energy Minister Gebran Bassil, who is not at his first communications blunder, to declare, in a press conference on January 26, that retaining the Ministry of Energy is of strategic importance for the Christians, without really explaining the stakes.

MESP identified and is reproducing the following arguments that are increasingly being brought up. We do not necessarily approve with the below arguments but we believe they must be presented to allow a better comprehension of the ongoing debate.   

1)      MOEW v/s Taef agreement?  A vacant Presidency is in itself a threat. Delegating its powers to a Council of Ministers in which Christian parties have only modest portfolios is likely to destabilize the country even further. Denying the largest Christian parties access to important ministries, after stripping their highest public offices of most of their powers, post-Taef, can only reinforce a sentiment of marginalization. Calls to reconsider the structure of the State have started to surface again. The quasi-hysterical insistence to remove the FPM from the Ministry of Energy was perceived by a large segment of Lebanese Christians as an additional attempt to sideline them. The more Christians have a say in this strategic sector, the more they would be reassured regarding their role within the State, and, the less they would be tempted to question the Constitution.

2)      Stability in an unstable environment: Some have a tendency to adopt a simplistic approach towards the political survival of the Christian community. We must admit that this is an argument that is increasingly being made. The equation establishes a direct link between the political and social stability of Lebanon that results from economic prosperity and the sustainable presence of the community. A link is therefore being made between oil and gas resources and stability.

3)      Independence in a deeply polarized Middle East: Lebanon’s resources are perceived as an opportunity to ensure local energy demand, and are expected to provide enough revenues to allow the country to extricate itself from the uneven relations it currently enjoys with regional powers. It is hoped to provide Lebanon with a bigger margin of maneuver vis-à-vis regional powers, and in particular Saudi Arabia and Iran, the regional “sponsors” of the local Sunni and Shiite political factions. The Christian community is tempted to perceive this as a means to reinforce the State, which, in turn would consolidate their presence.

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Previous issues:

Lebanon: The Oil & Gas Week, January 27, 2014
Lebanon: The Oil & Gas Week, January 13, 2014
Lebanon: The Oil & Gas Week, December 09, 2013
Lebanon: The Oil & Gas Week, November 25, 2013
Lebanon: The Oil & Gas Week, November 11, 2013