The National – Robin Mills
Snow fell across Lebanon over the New Year, and power cuts
plunged towns in the Bekaa valley into darkness. Syrian refugees in
Akkar huddled in their tents. Meanwhile, as Egypt and Israel forge ahead
with developing their offshore gasfields, the inviting Mediterranean
waters seem to hold the elusive solution to the country’s energy and
economic woes. Lebanon thinks the time has come for its own
deepwater gas wealth. The election in October of a new president, Michel
Aoun, after an interregnum of more than two years, has permitted the
passage of two crucial decrees enabling exploration bids. Eni’s giant
Zohr find off Egypt, less than 300 kilometres from Lebanese waters, has
raised optimism about the area.
Beirut
has divided its offshore into 10 blocks. Five will be offered in the
initial round, with a deadline in September – numbers 8, 9 and 10, along
the disputed maritime border with Israel, block 1 on the Syrian
frontier in the north, and block 4 in the middle. The bidding
conditions are stringent. Applicants to lead a consortium have to have
US$10 billion of assets and to operate at least one deepwater petroleum
project. Qualification for a lesser role requires US$500 million of
assets and established oil or gas production. Companies
that qualified for the last, abortive round in 2011 include some
impressive contenders – Shell, ExxonMobil, Chevron, Statoil, Total, Eni
and others. Qualified non-operators featured the UAE’s Dragon Oil,
Crescent and Dana Gas alongside a slew of local, Japanese, Russian,
Turkish and other companies. But Lebanon’s ambitions face three serious problems: low oil and gas prices; politics; and the difficulty of marketing gas.
The
business environment is very different from 2011, when the world’s
largest oil companies were sufficiently intrigued by Lebanon’s potential
to qualify. Then, global LNG prices averaged about $15 per million
British thermal units; today, even helped by high winter demand, they
are at about $9 and a further glut is on the way.
With the steep
drop in oil prices, several of those previously qualified have gone
bust, been taken over, or their assets have declined below the required
limit. Others, conserving capital or concentrating on shale in North
America, will not be interested in exploring hitherto untested waters up
to 2,100 metres deep. Some Lebanese politicians act as though they can
already spend the gas revenues; there is a real risk there may be
nothing to find.
The
continuing war in Syria does not encourage investors to come to the
region. Even more seriously, Lebanon has lost credibility after the long
political stalemate that stymied the last bid round. In Israel, gas
production was severely delayed by changes in tax and monopoly rules,
and populist pressure.
Oil companies will ask if they will invest
millions of dollars in exploration, perhaps hundreds of millions in
drilling wells, only to have development prevented by gridlock in the
factionalised Lebanese politics. They will also be worried about the
disputed borders of all the blocks except No 4.
Lebanon
is a small gas market, yet only large offshore finds will be
commercial. Pipelines to take surplus gas to consumers in Turkey will
have to cross the disputed waters of Cyprus, which wants to export its
own gas, or across the seabed of war-torn Syria. Or perhaps, in
partnership with Cyprus, gas could flow south to Egypt.
Lebanon
needs companies with the financial and technical strength to take on
these challenges. But at the same time, it should not raise the bar too
high and discourage hungry, capable mid-size players. The more
competitive the bidding, the more likely it is to get a good deal and
move quickly on to discovering whatever resources its waters hold. Only
if it can then negotiate squabbling local factions and the intricacies
of regional geopolitics will the residents of Lebanon gain some
benefits.
Robin Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis.
