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Lebanon Explores Offshore Energy
02/25/2013 10:30 am EST
Lebanon's first offshore oil and gas rights auction has drawn interest from about 100 companies, writes April Yee of The National.
Twenty-nine American firms are among those that have bought geophysical data in preparation for an upcoming bid round for Lebanese offshore energy production rights, which should take place this May, , Lebanese energy minister Gebran Bassil said last week.
The government is banking on hydrocarbons to help pay back debt of $56 billion—more than the country's annual economic output, and the highest proportion of debt to GDP in the Arab world. Inflation has ballooned to more than 10%, putting it in league with Nigeria.
Lebanon hopes to narrow the list of bidders next month before launching a six-month bidding process aimed at getting a formal exploration contract signed next year. Royal Dutch Shell (RDS.B), Scotland's Cairn Energy (London: CNE), Ireland's Cove Energy (London: COV), and Russia's Lukoil (LUKOY) are among those reportedly in the running.
An oil or gas find would also help Lebanon to disentangle its energy security from an unreliable regional pipeline network. Along with Israel, Jordan, and Syria, it forms part of the Arab Gas Pipeline, designed to deliver Egyptian supplies to Eastern Mediterranean states. But in the wake of the Egyptian revolution, the pipeline has been plagued with at least 14 acts of sabotage, mostly bombs, and the overall decline in Egyptian production.
Today, Lebanon spends 15% of its $40 billion GDP on fuel imports. But exploration interest in the Eastern Mediterranean region has been stoked by the 2010 discovery of the Leviathan field.
Altogether, the offshore areas claimed by Lebanon, Israel, Syria, and Cyprus could hold up to 1.7 billion barrels of recoverable oil and 122 trillion cubic feet of gas—8.5% of the world's gas deposits alone—according to the US Geological Survey. Bassil estimates that 25 trillion cubic feet of gas lie under Lebanese waters, according to various seismic surveys.
Since 2007, the Lebanese government has worked with Norway in an "oil for development" program to draft legislation and build the institutions that will form the foundation of the nation's oil and gas sector. Turkey has also been advising.
In 2010, the parliament passed the nation's first offshore oil law, and the government has set about formally defining offshore borders with neighbors, including Cyprus. It has also sent data to the United Nations mapping out the points of what it sees as the southern border of its exclusive economic zone, to head off a potential conflict with Israel.
In the year of the Leviathan discovery, Israel's national infrastructure minister said the government was ready to use force to protect gas assets, while Lebanon's Hezbollah, the Islamic militant group, has made similar pledges. One wild card is the question of whether Hezbollah will be welcoming to Western companies developing Lebanese assets.
Analysts fear that political divisions within the country could hold back Lebanon from achieving commercial production levels, which the ministry hopes to have in full swing by 2017. For its six-member petroleum administration, it appointed a carefully measured group of representatives from each of the most powerful Christian and Muslim sects.
Spillover from the Syrian civil war is a reminder of other factors outside Lebanon's control. Last month, Citigroup issued a report saying that 2020, rather than 2017, was a more realistic target for commercial extraction.
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