Oil has been interchangeably called “black gold” and the “devil’s excrement,” having both enriched the coffers of nations and pit them at war; it creates the capital for investment yet often destroys the development of other sectors in an economy. It is perhaps fitting then, that Lebanese politicians have recently found renewed impetus to squabble with each other over how to pry open the lid of this cursed treasure under the sea floor off our shores.
Lebanon’s slick history
The idea is not novel to those who have been following it. Oil and gas prospectors have long suspected the presence of hydrocarbons in the country, and there was a time when Lebanon had a proficient energy production industry.
Before the outbreak of the 1975-1990civil war, Lebanon used to refine oil in both Tripoli and Zahrani, suppliedeither by ship or overland via the old Trans-Arabian pipeline, which still runs from Qaisumah in Saudi Arabia to Zahrani. Supplies were then refined and even exported.
“We could regain our position as a major strategic transit country, like we used to be
before the 1970s, but we are not going to be Qatar or Saudi,” says Roudi Baroudi, independent energy consultant and Secretary General of the World Energy Council’s (WEC) Lebanon Member Committee.
Today, however, Lebanon’s oil and gas infrastructure lies in tatters, with the country unable to coverits own energy needs, much less regain its position as a strategic oil and gas nation. What’s more, in comparison to its neighbors, Lebanon is far behind in terms of its progress in oil and gas exploration and production.
“Our real problem is that we are very slow and we are late; everybody is ahead of us,” says Mohamad Kabbani, head of the Parliamentary Committee for Public Works, Transport, Energy and Water and a member of parliament (MP) allied with the former Prime Minister Saad Hariri.
Lebanon has already drilled seven onshore exploration wells and is currently considering options to perform surveys again. It was former Prime Minister Rafiq Hariri’s government that shifted the focus to exploring the offshore area in the early 2000s. Since then, a number of seismic surveys have taken place off the coast of the country, and the results have piqued the interests of international oil companies (IOCs). The latest was conducted by the Norwegian firm PGS, which has recently concluded a full two-dimensional survey of Lebanon’s Exclusive Economic Zone (EEZ) — an area 200 miles (370.4 nautical kilo meters) from the borders of a nation in which it can legally extract natural resources as per the United Nations Convention on the Law of the Sea.
According to Cesar AbuKhalil, advisor to the caretaker Minister of Energy and Water (MoEW) Gebran Bassil, who is part of the opposition Free Patriotic Movement, Lebanon has two-dimensional seismic data covering 23,500 square kilo meters and 3,500kilometers of three-dimensional seismic data. It also has an operational ‘data room’ where survey results can be viewed and analyzed, which is an essential condition for launching a bidding round. The information costs seismic companies tens of millions of dollars to acquire, which they then hope to turnaround and sell to oil companies, with revenue from the sale shared with the Lebanese government.
The Lebanese treasury has already benefited from its sale along with the companies that have performed the surveys. More than 10 IOCs and national oil companies (NOCs) have bought data from the ministry and they are asking for more, says Abu Khalil, who added that no single company had all the seismic data. Baroudi estimates that if the entire offshore area of the country were licensed out, each portion in which companies are licensed to operate would require an investment between $3million and $6 million to perform 3-dimensional surveys.
However, it remains to be seen whether these data purchases indicate genuine interest or are just efforts to keep the libraries of various IOCs and NOCs up to date.
Lebanon’s offshore area is part of the Syrian Arc, a geological structure of the earth that runs from Tadmor in Syria to Egypt and contains similar geological structures throughout. Lebanon is also part of the Levantine Basin, another structure located mostly beneath the waters of Lebanon, Israel, Cyprus and Syria. The government-run United States Geological Survey estimates that the basin contains some 1.7billion barrels of recoverable oil and 3.45 trillion cubic meters of recoverable gas. That becomes more significant when considered with the fact that the offshore Nile Delta region of Egypt has had an 85 percent exploration success rate, according to Baroudi.
But the more recent findings offshore of Haifa, straddling the Lebanese and Cypriot maritime border, are the ones that have raised the greatest interest of prospectors, and the greatest concern among Lebanese.
For all the promise the Lebanese offshore area holds, IOCs and NOCs have been loath in the past to seriously consider any foray into the country due to the absence of high-level regulation or legislation to protect potential investments. That changed last August when Lebanon’s parliament voted unanimously to pass legislation allowing for offshore exploration and production. The law had been lying dormant in parliament since the early part of last decade, unable to reach the floor due to a lack of political consensus and various conflicts among Lebanon’s political factions. At the behest of the Speaker of Parliament Nabih Berri — without whom no draft laws can come to the floor — the law was pushed through in a matter of days.
The reason for such haste was not only the backlog of legislation, but concern regarding activities south of the border. In January 2009, a joint United States-Israeli exploration group led by the US firm Noble Energy struck gold when they found a large natural gas deposit, dubbed Tamar, estimated at some 142 billion cubic meters (BCM) some 90kilometers off the coast of Haifa and just south of the Lebanese border. A few months later the group made another find in the Dalit field, estimated to be about 10 percent the size of the Tamar find. Such monumental discoveries could turn Israel into an energy exporter, a prospect that whipped the usually sluggish Lebanese parliament into action.
But passing a law will hardly be sufficient to bring the country up to speed with the rest of the region, let alone make it an attractive destination for IOCs and NOCs to invest in exploration. For starters, Lebanon has not set its maritime borders with any of its neighbors. Back in 2007, Lebanon and Cyprus did agree on the delineation of their maritime borders, a necessary measure given the overlap of their EEZs. But the agreement is now stuck at the prime minister’s office, which has not sent it on to the Parliament to be ratified for fear of angering Turkey — which does not recognize the Cypriot government — according to Future Movement MPK abbani.
Turkey is now a key mediator in efforts to resolve Lebanon’s political crisis after its cabinet collapsed last month. However, Lebanon not formalizing its borders with Cyprus means that royalties from any resources found in common fields — which the MoEW’s Abu Khalil suspects exist given the seismic data from companies that have operated in both countries — that extend to Lebanese and Cypriot waters cannot be divided between the two states as would be common practice according to the UN Law of the Sea, which both Lebanon and Cyprus have ratified. The prime minister’s office did not respond to Executive’s request for comment.
Cyprus is currently in the exploration phase after the success of its first bidding round and is expecting to contract areas that could contain common fields with Lebanon in the second half of this year, according to press reports. Cyprus has already awarded Noble Energy the rights to explore a 1,250-square-mile contract area bordering Israeli-claimed waters and formalized its borders with Israel in December of last year.
Syria — which already launched an unsuccessful exploration bidding round to attract interested companies and looks to be preparing for a second round this year — and Lebanon have not formally delineated their border, but Kabbani claims that “we can solve it with Syrians; it’s not a problem.”
But that is unlikely to assuage the fears of the IOCs and NOCs that will need to invest up to $250million per block in design and development, with between $500 million and $600million of foreign direct investment to actually build the infrastructure needed, according to the WEC’s Baroudi. Just in the exploration phase, he estimates companies will need to invest as much as $100 million, and a further$500 million individually or through joint ventures. Nonetheless, Baroudi believes that when all is said and done, Lebanon could bring in $3 billion per year in net earnings.
A regulator of sorts
Of course the revenues will have to be shared between the Lebanese government and the oil companies. According to the exploration law, each contract block will have to be bid on by a consortium of at least three companies under a production sharing agreement. Following a proposal by the energy minister, based on the opinion of “The Administrative Board for the Petroleum Sector,” the cabinet will decree the terms of the agreements for each block.
The administrative board itself will have to be appointed by the cabinet following a proposal by the minister. It will act as both regulator and consultant to the minister while also being under his purview. Kabbani explains that this structure was a focal point of the negotiation process to pass the law, whereby his party sought to water down the minister’s authority over the sector.
Having the board appointed by the Council of Ministers also implies that it will be subject to the sectarian trade-off of members, as are all administrative boards in Lebanon. That effectively means that if the sector is to be regulated according to best practices, and decisions are to be taken in a streamlined fashion, the cabinet, minister and board will all have to agree. At the time of this writing, there is no functioning cabinet, the backlog of decisions and appointments to be made numbers more than 300 and Lebanon is in the midst of a full-blown political crisis.