CRACKING LEBANON’S OIL, GAS POTENTIAL

Offshore Prospects Gain Momentum with Maritime Boundary Deal

Lebanon’s maritime boundary dispute with Israel has long hindered its ability to tap into the vast potential of its offshore resources. However, following the signing of a groundbreaking maritime boundary deal last year, a new era of investment and exploration is dawning for the Lebanese energy sector. The resolution of this decades-long dispute paves the way for cooperation and sets the stage for Lebanon to harness its offshore prospects and fuel economic growth.

By Liesl Venter

The country’s long-awaited second licensing round, delayed for years, is now slated to take place later this year. Moreover, the border deal has unlocked opportunities for exploration in the coveted Qana prospect in Block 9.

Marc Ayoub, an energy researcher, a non-resident fellow at the Tahrir Institute for Middle East Policy, and an associate fellow at the AUB Issam Fares Institute, has high hopes for the unfolding developments in Lebanon.

“We have been monitoring the situation in Lebanon for several years. Substantial progress has been

Region: Middle East

Problem: Successive disappointments in Lebanon’s oil & gas exploration have deterred investors

Solution: A new boundary agreement could be the catalyst for new drilling, spearheaded by TotalEnergies made quickly since the boundary agreement was signed at the end of last year. The first drilling will start as soon as September this year.”

Looking at a timeline of the events, it is indicative of the belief in the Lebanese oil and gas potential. In October last year, Israel and Lebanon agreed on the maritime boundary. Within weeks of this, TotalEnergies and its partner ENI signed a framework agreement with Israel to implement the agreement on the maritime border.

Not even two months later, TotalEnergies announced that Russia was no longer part of the consortium and was welcoming QatarEnergy into the fold. In the agreement, TotalEnergies and Eni each retain a 35 percent interest in the blocks, with QatarEnergy holding the remaining 30 percent.

According to Patrick Pouyanné, chairman and CEO of TotalEnergies, the delineation of Lebanon’s maritime border with Israel created a new momentum for exploring Lebanon’s hydrocarbon potential, justifying the mobilization of teams on the ground.

Fast Timeline Justified

By the end of March, the team mobilized in Beirut had reached more than 20 employees. The call for tenders to secure the drilling rig had been launched, and pre-orders were already placed with suppliers for equipment required for the well. In parallel, offshore resources were also being mobilized to contribute to the environmental studies, which, at the time of going to print, were in the final stages.

Both TotalEnergies and the Lebanese government are adamant that drilling will start by September and that it will be known if there is a discovery or not before the end of the year.

“The fact that we are going to see the first drill vessel in Lebanon as soon as September, not even a year after this agreement was signed, shows that the hold-up has been due to the ongoing political issue and not because of the lack of technical ability or interest in Lebanon’s oil and gas sector,” Ayoub said.

The license for Block 4 had already been received as far back as 2018, and with a permit now in place for Block 9, oil and gas exploration is expected to pick up in the country.

“The border problem has been causing delays in the oil and gas sector development for years. In 2020 TotalEnergies drilled in Block 4 but only found traces of gas. Since then, all activities have come to a complete standstill. Yes, Covid-19 did play a role in this, but the politics around the maritime border issue was by far the driving force in most role-players taking a step back and not willing to commit to exploration in Lebanon,” Ayoub said.

Diana El Kaissy, an energy governance specialist and advisory board member at the Lebanese Oil and Gas Initiative (LOGI), as well as a member of the international EITI Board representing several civil society organizations, agreed with Ayoub saying the country has finally moved out of the deadlock it found itself in.

“This stalemate prevented companies from working in the oil and gas sector. The willingness of companies like TotalEnergies and ENI to immediately commit to drilling Block 9 mere weeks after the maritime boundary agreement was signed is a testament that any form of investment or action in the oil and gas sector would only happen around a border resolution.”

Speaking to Breakbulk, El Kaissy said Lebanon was in a perfect storm shortly after the first exploration in 2018. “Covid-19 was happening on one side, and on the other was the decreasing value of oil barrels. Also, TotalEnergies had come up empty-handed in 2018. Investors’ appetite was low, and for US$150 million to drill just one well and come up dry, no-one would touch the Lebanese energy sector.”

And the risk factor only increased exponentially with political unrest in the country and an ongoing dispute over maritime boundaries.

Managing Expectations

While excited about the outlook and positive developments in the past few months, El Kaissy warned that it is still early days. “The likelihood of discovering anything significant from drilling a single well in Block 9 is only 20 percent. It is important to manage our expectations in this regard. While there is a potential for finding untapped resources and exploring deep-sea territories, the minimal insights provided by seismic surveys should be considered. We must be aware of these limitations and consider the broader perspective when making decisions,” she said.

Ayoub agreed, saying that Lebanon was still far from oil and gas riches. The country, he said, remains wracked by political turmoil, and financial chaos prevails. Like El Kaissy, he warned

Potential areas of exploration

Potential area of operations

border claim claim that there are still no proven gas reserves and even if TotalEnergies hits the jackpot in September and makes a significant finding, it would take a minimum of five years, if not more, before the country could successfully pump anything.

“What we must take from the developments thus far is that there is potential and opportunity. The move by

TotalEnergies could be the catalyst to convince other companies to consider Lebanon for oil and gas exploration.” He added that while oil and gas activities started in 2013 and there is some indication that the country has oil and gas reserves, there are significant hurdles to overcome still.

Logistics companies Breakbulk spoke with were hesitant to comment on the developments saying that investment into the necessary infrastructure to service a burgeoning oil and gas sector was yet to materialize.

“Contracts have been signed, and logistics companies are involved in the TotalEnergies exploration drilling taking place later this year,” Ayoub said. But for the most part, it is still a wait-and-see game. “We must not forget that Lebanon has been here before. In 2013, there was talk about the big oil and gas finds, and the impact and change it would bring to the country when it became this major oil and gas producer. There was disappointment when drilling happened, and the wells turned out to be dry. There is a lesson to be taken from this,” he said. “Yes, the current developments are good and positive, but we need to be critically aware of what is real and what is not. Lebanon must be wary of selling its gas before it has evidence of it being there. Expectations around the country’s oil and gas development must be managed very carefully.”

At the same time, he said, the recovery of Lebanon could not be built on the possibility of a burgeoning oil and gas sector.

“We are far from being an oil and gas producing country. We do not know the quantities of oil and gas in Lebanon, the value, or the potential markets. We also cannot wait for a developed oil and gas sector to recover the country’s macroeconomics. It must happen irrespective of the oil and gas developments.”

Challenges Prevail

Meanwhile, implementing a legal framework poses significant challenges for the Lebanese government, El Kaissy said. “The rule of law, which exists on paper, must be transformed into a functional and robust institutional setup. Although we have devised a promising model, transparency laws, and a governance structure, the lack of a functional industry and political deadlocks within the council of ministers have proven fatal obstacles.”

She explains how Lebanon’s first licensing round in 2013 ultimately failed due to the non-issuance of several necessary decrees. This saw a loss of investor confidence, as only three out of the initial 50 interested parties remained, with bids received for only two blocks.

“To overcome these challenges, addressing political deadlocks and ensuring effective decision-making within the council of ministers is imperative. Additionally, we must focus on creating a conducive environment for a functional industry to thrive, thus attracting more investors and fostering economic growth,” she said.

This is a long-term commitment and needs to move beyond the short-term euphoria currently being experienced. “On the other hand, we have time on our hands,” she said. “Even if we discover a well today, it will still require an extensive period to determine its commercial viability. Moreover, reaching agreements with neighboring countries, such as Israel, regarding shared waters will also take significant time, possibly several years. These discussions and developments will be essential in establishing the best approach for developing the wells and maximizing potential.”

This will also give Lebanon muchneeded time to focus on developing the necessary logistics infrastructure. “This will set Lebanon on the right track; ports, roads, pipelines – all of it will collectively address some of the challenges in the country. It will bring major project opportunities and, in turn, employment. We need to recognize that our current weakness is not a permanent state; instead, it is an opportunity for growth and improvement.”

Winning Hearts and Minds

Ayoub and El Kaissy agreed that Lebanon must work hard to entice investors and convince them of political stability. That will take more than just the signing of an agreement or two.

“Functional regulatory authorities, a solid government that is transparent, a clear commitment to political stability – this and more will be needed before we are even going to get close to reaping any kind of reward out of the oil and gas sector,” El Kaissy said.

At the same time, there has to be a clear drive towards sustainability, considering the move away from oil and gas.

“As academics and analysts, we are calling on the Lebanese government to be careful and not place all its eggs in one basket but also to drive diversification and a strong move towards renewable energy,” Ayoub said.

He believes politics will continue to be the biggest obstacle in Lebanon. “There is talk about a pipeline coming from Cyprus and some discussion with Israel. How will these discussions impact if we find gas later this year? Yes, it will lead to infrastructure development and more project work in the country, but will we use the energy for internal use first and export what is left over? And to where would we export it? These questions and several more really depend on what TotalEnergies discovers later this year.”

With a second licensing round expected to open up the eight remaining blocks in the country, cautionary optimism prevails around the Lebanese oil and gas sector. However, a June deadline for its release was not met.

“Lebanon is not an easy country to operate in,” said a logistics operator who preferred to remain anonymous. “There is potential. We have seen some international companies get tenders to move the project equipment via Beirut port to Block 9 later this year for drilling. There have been tenders to service the boats and move cargo to and from the exploration drill. But it is all still early days.

“At this stage, it is anyone’s guess whether Lebanon will strike it big.”

By Liesl Venter