BEIRUT, Lebanon
Dear friends,
I would like to share with
you the interview that I have recently given to Marc Ayoub of Lebanon Gas
and Oil, Lebanon's most important gas and oil media platform.
You may read
"Interview with Alessandro Bacci About Lebanon's Oil & Gas Future" of July 2015 on the website of Lebanon Gas and Oil or alternatively you may
find below the unabridged text of the interview copied below.
INTERVIEW WITH ALESSANDRO BACCI ABOUT LEBANON'S OIL & GAS FUTURE
Marc Ayoub
July 2015
Exclusive interview with Energy Specialist Alessandro Bacci: “The
current situation may not be one of the best, but there is still HOPE in
Lebanon!”
After the nuclear agreement
between Iran and the P5+1 group that was reached on July 14th in Vienna,
experts around the globe will carefully be looking on the implementation steps
of this deal, which is expected to have direct implications on both the
political and economic situations in the Middle East region.
What about the deal’s
impact on the Oil & Gas Sector? Will Iran’s re-entry to the world market
affect again oil prices? Or will the immediate post-Iran deal period be a
period of hesitation and testing until the time is ripe for broad arrangements?
Lebanon Gas & Oil
interviewed Energy Specialist Alessandro Bacci, with whom we had an interesting
discussion on all these topics and especially the industry’s situation in
Lebanon. Mr. Bacci, who is active in the fields of Policy, Government and
Public Affairs in the Middle East and North Africa, is currently a member of
the Italy-Kuwait Association. Mr. Bacci's activity is related to the implementation
of best practices for creating sound energy institutions and governance,
ensuring robust fiscal policy and competitiveness, and transforming energy
resources into broader long-term development.
After the Iran nuclear
deal, will Lebanon and the Middle East catch the opportunity? Will we see a
change in the global O&G scene? (We started hearing that Iran is getting
ready to return to the Oil and Gas market.)
Let's start from the
O&G scene. According to the perspective one looks into this topic, you can
have contradictory results. For example, let’s focus on OPEC, where you have
already struggles and different opinions concerning production.. On the one
hand, as a consequence of the reduction in the price of oil, OPEC countries are
currently earning less money in comparison to last year when in June the price
of a barrel was around $105. But under the tight guidance of Saudi Arabia, OPEC
countries have decided not to cut their production but to maintain their market
quota. The idea was to push out of the market U.S. shale oil producers who have
higher extraction costs. Some OPEC members like this strategy, some others are
reluctantly following it. So, if the Iranians re-enter the market, it won’t be
very easy to accommodate them. In fact, more oil in time of low prices will not
increase the price of oil although it's true that it will take time to Iran in
order to augment its production. Some estimates of Iran's capacity to restart
its oil production in just half a year (six months) are literally too optimistic.
One year and a half (18 months) is a more credible possibility when you talk
about an additional 1 million BPD in the market.
On the other hand, some
OPEC countries already have plans to increase their production. One of these
countries is Kuwait, which is now producing around 3 million BPD but it's
willing to increase its production by 2020 by an additional million. . So does
Iraq, Kurdistan, etc… — all wants to produce more barrels. Thus, I am not so
sure that the re-entrance of a super player like Iran could be immensely useful
in this transition period for the region and this could probably affect the oil
price, which could go lower.
As for the impact on
Lebanon, my advice to the politicians is to start thinking in the industry
without linkages to other countries because alliances won’t stay the same, and
each country would like to run by itself. When we talk about Iran and its
interest to return to be more involved in the petroleum sector on a global
scale, I think that we have to understand a few things in relation to what this
may mean for Lebanon.
In fact, on the one hand,
it's quite improbable that a more direct Iranian involvement in Lebanon could
really permit the Lebanese government to start with its offshore natural gas
program. If Lebanon decides to go on with this program, it will be through an
auction for which 12 operators already prequalified. Among them: Chevron,
E.N.I., ExxonMobil, Petrobras, Shell, Statoil and Total. Who are these
companies? They are the best you may find. In addition, Lebanon's offshore
natural gas is not easy to extract because it's deeply buried in the seabed of
the eastern Mediterranean. In practice, Lebanon needs this kind of companies.
Companies having financial resources and top-notch skills. And if I remember
well, the National Iranian Drilling Corporation was one of those companies that
were not selected in order to participate in the auction. Similarly, it would
not serve the interest of Lebanon to cancel the idea of implementing an auction
with many players and start a direct negotiation with some Iranian companies. I
repeat if Lebanon decides to move on with the offshore gas it has to do it with
the best players out there. Moreover, Iran now in order to restart its
petroleum production requires significant external investment. On the other
hand, Iranian investments may be very helpful for some other projects linked to
the petroleum sector. We know that Iran would like to implement some projects
in Lebanon with reference to the construction of refineries and power plants.
These projects, if implemented, may well serve the interest of both countries.
And for sure Lebanon has to upgrade its downstream petroleum sector”.
What is your opinion about
the Lebanese Oil and Gas Industry, especially that you have already published a
recent paper of all the aspects of the industry? Until when do you think that
the deadlock will remain?
Well, it is true that the
situation is not totally amazing. When some companies talk about security
reasons, I think it is more as an excuse right now to gain additional time.
There need to be patience in order to
work in this part of the world; the situation has stayed the same since two
years, at least it has not worsened in
comparison to when the companies were here, asking for data and participating
in many conferences that were happening in Lebanon. Many factors together
brought us to this standoff situation.
First of all, when we are
talking about Lebanon, companies are waiting for the famous 2 decrees to be
adopted by the Government. Without the 2 decrees, they cannot understand what
the potential of this country is. The
first one delineates the blocks and we know that there is a borders dispute
with Israel and companies prefer to know what the blocks will look like. The
second decree is the one related to fiscal issues or the Production Sharing
Agreement with the IOCs. There is a draft copy, but it has not been approved
yet, so companies need to know what the definitive text will be. When you have
an official text that is approved by all the entities, you will have something
concrete and precise to show to companies.
Then of course, with
reference to the situation, there are many different things to be considered:
you want to invest in a place that is safe, where you know what your costs are,
and what you are extracting and where you are exporting. It’s not the
geological conditions that are really scaring to the companies which are
accustomed to working in difficult environments, but the cost of working
offshore. I believe that the standoff derives from a true combination of all
these factors together as well as the current conditions in the petroleum sector.
At this junction of time in
Lebanon, officials should decide what they have to do. What they should have
done, such as surveys, studies, etc..., has been accomplished well. Right now,
you have to do the deals, otherwise, you have to go and tell the people why you
cannot go ahead in this. Is it only economical wise? Is it because of
companies' competitiveness? You have to give an answer.
What about the EU crisis
with Greece? And how will it affect the industry and the European markets? What
about Iran and the EU?
Well, for me the EU crisis
with Greece is one thing, while the EU energy necessity to diversify its energy
providers is a different thing.
The European Union strongly
relies on Moscow for almost a third of its overall natural gas demand. But
alternative options are not so easy right now, as the EU will look in the near
future to Iran, especially after the deal we have talked on, but you have to
pass through Turkey and build new infrastructure.
But, I don’t think there
will be a connection between the EU crisis with Greece and the EU energy
consumption as the EU is always looking into different ways to satisfy its
energy needs. At the EU level the current crisis with Greece is not related to
energy issues.
Instead, Iran could be an
important provider for the European countries. Let me tell you some statistics:
Combining oil and gas
together, Iran is in the third position after Russia and Venezuela. In fact,
Iran has the fourth largest oil reserves in the world after Venezuela, Saudi
Arabia, and Canada and has the second largest natural gas reserves in the world
— Russia, Iran.
Thus, in order to diversify
its supply, Europe has to look into these numbers and see what the options
available are. It is not easy, I know it, but the Iranian option could be
doable at least in the long run.
Speaking about the low
current oil prices, how long in your opinion will this last? What are the real
causes of this drop?
The economic crisis has an
impact on the price of oil. The demand is not very strong, and this is
depressing the prices. You have a production of more than 94 million BPD but
the demand is not as much as this. Add to that the actual problems in China,
which was for the Middle East one of the most important markets. I should
mention here that most of the oil of the Gulf goes to Asia (Japan, South Korea,
India, etc...), so as a result I don’t see the current oil price moving
amazingly up in the next 6 months at least. All this said, there are so many
variables that affect the price, so it is very difficult to judge what will
happen in the future. One thing we need also to monitor is what is happening in
the United States. In fact, the US is diminishing the rigs, for the shale oil
and shale gas, but the production is at the same time varying around the same
numbers. Probably, in the coming months, there will be a decrease in the
barrels produced unconventionally.
You have attended all the
conferences that were held in Lebanon since January 2015 concerning the O&G
sector. What do you think about them?
Conferences are something
that you have to do in Lebanon. Otherwise, you risk losing the grip. If you
want to achieve a project, you have to maintain the fire under the project, and
the LPA has done this very well. You should always inform people and companies
to keep them updated, keep in touch with the Media and tell them where you
stand.
Can the Lebanese people
still HOPE of a healthy O&G industry?
There’s always HOPE,
because what you have as hydrocarbons wealth could be very interesting. The
moment is not maybe one of the best in time, but at least you should have good
stuff. People should try to identify what the political reasons behind the
deadlock are, and I push politicians to move forward today. As I said before,
alliances will not probably remain the same in the next 10-15 years, and
Lebanese should think about themselves, and what is economically and socially
useful for the Lebanese citizens.
Interviewed by Marc Ayoub
Twitter: @Marc_Ayoub