Lebanon's Likelihood to Stick to its New Bidding Round Date
Several delays in launching Lebanon’s bidding round have decreased credibility in the country’s ability to stick to its new 10 April 2014 date. An optimistic outlook based on encouraging seismic surveys performed in Lebanese waters is inclined to open the licensing round sooner than later to tap into the country’s hydrocarbon riches and end its power outages and burdening debt.
Despite all good intentions to get the process going, political rivalries and foreign interventions constitute difficult hurdles to overcome. Lebanon is struggling to instore an environment of quasi-stability that would encourage investors to participate in Lebanon’s transformation into a natural gas producer and guarantee their rights if they do.
A pre-qualification round earlier in 2013 demonstrated that Lebanon’s energy attractiveness was real. Fifty two companies from more than twenty five different countries submitted their pre-qualification applications. Following a set of predefined criteria of legal, financial, technical and QHSE nature, the Petroleum Administration elected forty six applicants (twelve as Right-Holders Operators and thirty four as Right-Holders Non-Operators).
A deeply polarised Lebanon has been functioning without a fully empowered government since the collapse of the Mikati cabinet in March 2013. Without a government that holds executive powers, the two decrees that are essential to the launching of the bidding process could not be issued and the opening date of the licensing round kept being pushed. Lebanon now has less than three months to address the issues dividing its political force and form a government capable of getting business going.
Increased security concerns and a still unresolved next-door conflict in Syria are not good indicators that the political vacuum in Lebanon will be filled anytime soon. The election of a new President for Lebanon is scheduled for May 2014 and a new cabinet must be formed after his election. In the unrealistic scenario that a new government were to be formed today, it would only last until then. Parliamentary elections are also scheduled to be held in November 2014, and another government will be formed again. In the current shaky political climate it is unsure that Presidential elections will even take place in time and if Lebanon will continue to operate with a government with limited powers and for how long.
International oil and gas majors are reportedly still interested in participating in Lebanon’s oil and gas exploration activities but the political impasse is cause for concern. Companies usually expect an environment of stability that would guarantee their rights and secure the validity of their contracts. Large funds are unlikely to be injected in moving grounds. Until Lebanon’s politics agree on a government that would serve all their interests and put an end to their neverending confrontations, it is difficult to see the bidding round happening.
Karen Ayat is an analyst focused on energy geopolitics in the Eastern Mediterranean. Email Karen on ayat_karen@hotmail.com. Follow her on Twitter: @karenayat