Lebanon's Bidding Round Likely to be Delayed Again
Lebanon’s offshore licensing round is likely to be pushed again. The country’s bidding round was supposed to be opened on 10 April after having been postponed several times by previous energy minister Gebran Bassil. The reason of the delays is pending pieces of legislation demarcating the blocks that will be open for bidding and determining the model sharing agreement that have not been able to be issued by the caretaker cabinet. The resignation of former Prime Minister Najib Mikati in March 2013 has left the country without a cabinet. The caretaker cabinet failed to pass the necessary laws that would launch the bidding process despite pressure from the former minister of energy in that direction.
In January 2014, former minister Gebran Bassil had postponed for the third time the auction for the licensing of offshore gas exploration in Lebanon to 10 of April 2014. In February 2014, a new government with full powers was announced breaking a 10 months deadlock. Despite the current presence of a government with the power to determine the blocks for bidding and set the revenue mechanism, the opening of the bidding round is likely to be delayed again. Companies need time to prepare their bids and need to be given sufficient information to formulate their interests.
Lebanon had received substantial interest from major international oil and gas companies from 25 different countries. Having proven their eligibility on various grounds as determined by Law No. 132/2010 and the Pre-qualification Decree, Chevron, Eni, ExxonMobil, Inpex, Maersk, Petrobras, Petronas, Repsol, Shell, Statoil, Total pre-qualified to act as operator. Companies that pre-qualified as non-operator include Marathon Oil, KOGAS and GDF Suez. Seismic surveys revealed that Lebanon had a high hydrocarbon potential beneath its seabed. According to a statement from previous Energy Minister Gebran Bassil, Lebanon could have at least 96 tcf of gas and 850 million barrels of oil in 45% of the country’s surveyed territorial waters.
The various delays have however threatened that Lebanon could lose its attractiveness if it fails to stick to deadlines and offer an environment of professionalism and stability for foreign investors. The Syrian conflict next door has created tension in a country already shaken by domestic political rivalries. An on-going maritime border conflict with Israel is also an additional issue that could deter oil and gas majors from investing in the country’s troubled waters. Lebanon and Israel both claim a maritime area of 850 square kilometers as part of their own EEZ. Efforts to mediate the dispute have failed in the past. The US have recently advised Lebanon not to drill in the disputed area before a solution to the conflict is achieved arguing that companies would be reluctant to commence activities in disputed territories.
An effective management of the bidding process would allow Lebanon to commence exploration activities off its shores. Lebanon needs to first finalise its legislations and offer an environment of transparency and stability to attract the needed investments. Time is key when neighbouring Israel and Cyprus have already launched their exploration phases and are progressing towards export stage. Lebanese officials believe that the encounter of substantial amounts of natural gas under its seabed would allow the country to overcome its burdening USD 60 billion public debt.
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