BEIRUT, Lebanon — The
U.S. Geological Survey values that in the Levant Basin there could be around
120 trillion cubic feet (TCF) of technically recoverable gas. The
countries that directly share the water of the Levant Basin are Cyprus,
Israel, Gaza, Lebanon and Syria. In addition to them, Northern Cyprus — which
is under Turkish control —
claims
part of the area under Greek Cypriot control. Turkey's aim is now to stop
any explorations until its requests are acknowledged. Among all these
countries maritime boundaries are defined to so poor a degree, like the
well-known and strongly contested land borders.
When, on January 17, 2009,
Israel discovered the Tamar Gas Field (containing around 9.7 TCF of gas) 50
miles off Haifa's coast, immediately neighboring countries began taking
steps in order to explore consistently their areas in the Levant Basin.
Since 2008, Lebanon has indentified some important gas deposits in the waters
off its coast, but only after Israel's discovery Beirut realized that hadn't it
speeded up its operations, it would have really risked being left out from the
newly discovered gas riches. And considering that Lebanon was still technically
at war with Israel —
not
to mention the existence of a wedge of sea of 850 square kilometers contended
between the two countries —
and
that it had still some open disputes with Cyprus concerning maritime
boundaries, it was absolutely mandatory for Beirut to explore extensively its
part of the Levant Basin as soon as possible.
Lebanon is almost 100 percent
dependent upon foreign energy sources in order to meet its energy
needs. Fifteen percent of Lebanon's G.D.P. is destined to pay for the
country's hydrocarbons account. In other words, gas self-sufficiency could
provide a powerful boost to Lebanese economy. This dependence upon external
energy sources has been until today a circumstance common to all the
countries now involved in this gas rush in the eastern Mediterranean Sea. Some
estimates calculate that having its own gas could permit Lebanon to right away
save $1 billion just in transportation costs. Of course, Lebanon does not have
the technological skills to develop it offshore gas fields and key to the
development of its gas reserves is to bring in international energy companies,
which do have the necessary expertise, but that at the same time could be
driven off by Lebanon's political instability.
Notwithstanding a very
difficult Lebanese political environment with increased sectarian affiliation
and the current war in Syria with its spillover into Lebanon, Beirut understood
immediately the importance of gas exploration for the development of its
economy and in 2010 passed a petroleum law. Moreover, at the end of last year,
when many of the energy companies desiring to bid in the future for the
Lebanese gas were becoming very frustrated by the government's inability
to name the six members of the Lebanese Petroleum Administration (L.P.A.), a
solution was found and the authority was then established. This committee will
now oversee the issuance of the licenses. According to recent estimates,
Lebanon should have about 25 TCF within an area of 3,000 squared
kilometers. Such an endowment is larger than Syria's and Cyprus' gas
endowments combined.
According to Mr. Salah Khayat,
C.E.O. of Lebanon's upstream oil and gas company Petroleb (established in
mid-2011) "The 3-D data provided by Spectrum and Petroleum Geo-Services
suggest that we have oil and gas resources valued in tens of billions of
dollars when extracted over the next four decades". He then added that
Lebanon could well have a gas endowment larger than Israel's. Lebanese gas
reserves are located below the sea bed at a depth from 1,000 meters to
2,500 meters so that top-notch oil extraction expertise is required.
Beginning to develop these gas
resources is also important because if some gas wells in the open sea could be
operative in less than two years, building an industrial system capable of
exporting the produced gas will require from six years to eight years. And of
course, initially Lebanon will have to transform its domestic energy
infrastructure. Electric power plants, which now run on diesel oil, will have
to be modified and/or new ones have to be built in order to run on natural gas.
Not to mention that given the strained relations among Levantine countries
finding gas purchasers won't be an easy task.
The regional political contest
doesn't help none of the Levantine wannabe gas producers. But Lebanon has to
overcome also an additional hurdle: its internal politics, which, since the
independence from France in 1943, has been a constant and destabilizing factor.
For the Jameson Foundation, a U.S. think tank, it's probable that the country's
sectarian rivalries and divisions will engender a dispute over the control of
the newly discovered energy resources. Lebanon most relevant antagonism is
between the March 8 coalition, dominated by Hezbollah, which is now in power,
and the opposition represented by the March 14 coalition. Today's Lebanon has
17 recognized sects which all wrangle for power. With no doubt, an impaired
government (no national budget has been passed since 2005) does not provide the
best guarantees for a bidding process to which more than 40 international
energy companies have showed interest according to Energy Minister Gebran
Bassil. In addition, Lebanon has armed forces badly equipped and subjected to
sectarian tensions. This overall combination could not be able to adequately
protect the gas fields with reference both to military assaults or terrorist
attacks. Presently, Lebanese naval forces mainly implement coast guard tasks
(search-and-rescue and smuggling interdiction operations) and should be
upgraded in order to well patrol Lebanon's maritime exclusive economic zone
(E.E.Z.). Moreover, Lebanon's corruption is endemic and it's almost unthinkable
that gas revenues, estimated initially at $40 billion, will not be subject to
bribery.
The pre-qualification process
for the international energy companies desiring to bid for the exploration
licenses had to begin in the first week of February, after several months of
delay linked to political issues. For the moment, nothing has happened probably
because the Council of Ministers has still to issue a decree authorizing the
bidding process. The scheduled timetable envisaged to award contracts in March
2014 and to start the activity in 2017.
According to Cesar Abi Khalil,
an advisor to the Energy Ministry, exploration and production agreements
(E.P.A.s) will soon, probably in April, be approved by the Council of
Ministries and the companies will start bidding on May 2, but for the moment it
is not clear which blocks will be auctioned to the foreign companies.
Initially, international oil companies were obliged to have in any case a
Lebanese partner creating a joint venture. Now, according to a government
source, foreign companies do not need a Lebanese partner if they are able to
propose a viable strategy. Successively, pre-qualified companies will be
allowed to form joint ventures between themselves if they deem it useful. It
seems that companies that want to participate in the auction must have at least
$500 in assets to perform the role of non-operators.
Definitely, there is already
the need to specify the fiscal and financial structure of the contracts. This
point is very noteworthy because companies have the necessity to structure
their investments. Failing to provide them with a complete picture could lately
force the involved companies to reopen negotiations once their initial
bids have been accepted.
Summing up, the big unknown is
whether the new authority will be capable of being free from political
pressures. With its members appointed after a lot of political bickering it
won't be easy. But for a country that has suffered many years of war the
possibility of developing its offshore gas fields is really an opportunity not
to be missed.