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Russian expansionism

Lebanon seeks to join its neighbors in oil and gas exploration

by Mona Sukkarieh

There’s no shortage of headlines about Russia’s grand design for the East Mediterranean gas resources. An unrealistic understanding of the strategic significance of these resources and the role they could play in weaning Europe away from Russian gas fuels these claims. In reality, we have yet to see a Russian breakthrough in the upstream oil sector of the countries surrounding the Levant Basin.

Cyprus has recently concluded a successful licensing round, awarding exploration licenses to Italy’s Eni, France’s Total and US-based ExxonMobil, alongside the latter’s partner Qatar Petroleum. No Russian company participated in this round. In the previous round, Russia’s Novatek and GPB Global Resources (part of state-owned Gasprombank Group) presented an offer together with Total but ultimately failed to win a license. In 2012-2013, at the height of Cyprus’ financial woes, it was reported that Cypriot officials were tempting the Russians with rights to gas exploration in the country’s Exclusive Economic Zone in return for a second loan from Moscow. It was even rumored Gazprom would offer Cyprus a private bailout plan, as reported in The New York Times, but the Russians were not tempted.

Russia’s interest in Israel’s gas sector has been more palpable. It has made several attempts to enter the Israeli gas market, with no success so far. In 2012, Gazprom bid for a 30 percent stake in the Leviathan gas field. The Russian company reportedly submitted the highest bid but lost to Australia’s Woodside Petroleum (whose bid was ultimately aborted). In 2013, Gazprom signed a letter of intent with the Tamar gas field partners to buy and export liquefied natural gas (LNG) through a floating facility. It never materialized. More recently, Russian President Vladimir Putin and Israeli Prime Minister Benjamin Netanyahu addressed the issue of Leviathan’s development in their latest meetings, with the rationale being that Russian involvement in the Israeli market would contribute to securing Israeli offshore drilling platforms and installations from cross-border threats, particularly those that of Hezbollah. But, here too, we have yet to see concrete results. It will be interesting to follow the results of the first Israeli offshore licensing round and see whether Russian companies place bids, and more importantly, if they will be awarded contracts.

[pullquote] Russian energy companies have yet to match Russia’s growing political influence in the region [/pullquote]

In December 2013, the Russian state-controlled Soyuzneftegaz was awarded an exploration and production license in Block 2, off the Syrian coast. In September 2015, its chairman decided not to proceed with the project because of the risks involved, and announced that the project would go to another Russian company. On April 21 this year, Syrian President Bashar Assad was quoted as saying that his government has started signing deals with Russian oil and gas companies. No details have yet been disclosed.

In Lebanon, three Russian companies prequalified in 2013 for the first licensing round in offshore oil and gas. All of them sought a non-operator role (and some of them partnered with western operators at the time), which came as a surprise for those expecting a more visible presence by Russian companies, and behind them, the Russian state. In the latest prequalification round, one of these companies, Lukoil, sought to modify its status and qualify as  an operator for the tender, but the attempt was unsuccessful. 

The picture is different in Egypt, where Russian companies are more active and are looking to expand their presence. Lukoil is involved in three upstream projects in Egypt, while Rosneft is negotiating a 30 percent stake in Zohr, Eni’s massive 2015 gas discovery.

Generally speaking, Russian energy companies have yet to match Russia’s growing political influence in the region.

There are two ongoing licensing rounds in the region: the Israeli bidding round will close on July 10, the Lebanese on September 15. By the end of the year, we will see if Russian corporations express interest, and – more importantly – if one or more is awarded a license. Where Russia will choose to set its foot, and who will award it a license, are both equally important questions.

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Mona Sukkarieh

Mona Sukkarieh is the cofounder of Middle East Strategic Perspectives (http://www.mesp.me), a Beirut based political risk consultancy

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