Lebanon’s Energy Sector Stalled By Government Crisis

Although recent gas discoveries in Lebanon’s territorial waters have left many optimistic, the sector still faces various challenges.

al-monitor Workers look at screens during an onshore gas and oil inspection in Batroun, northern Lebanon, Oct. 2, 2013.  Photo by REUTERS/Mohammed Azaki.

Topics covered

petroleum, lebanon, lebanese maritime borders, israeli-lebanese maritime border, energy

Oct 18, 2013

Lebanese citizens became optimistic when they heard about the possibility of the discovery of gas reserves in Lebanon's territorial waters. But this optimism was followed by a question raised by all Lebanese: Who will benefit from the revenues? Will the politicians put their hands on them? What is remarkable is that this question is being raised by most citizens, regardless of their religion or sect. Meanwhile, the discovery of petroleum reserves in Lebanon would be a golden opportunity that opens the doors to a new economic sector, away from pessimism that prevails in the country.

For months, Lebanon has been suffering from a crisis related to the formation of the government. There is a resigned (caretaker) government, and another waiting to be formed. The petroleum issue overlaps with many of the contentious matters related to forming the government. Lebanese law stipulates that the cabinet approve the maritime blocks that will be allocated to international companies as well as the conditions and details of production sharing agreements. Yet, this law also limits the powers of the caretaker government.

Thus, the request by caretaker Minister of Energy Gebran Bassil to hold an extraordinary cabinet meeting to discuss and vote on pending petroleum issues has presented a constitutional dilemma in addition to political controversy. The opposition Future Movement objected to holding an extraordinary cabinet meeting, because signing contracts with oil companies now would mean committing the state to 25-year agreements. According to the Future Movement, this is not an urgent matter, and must be discussed and voted on by a government that enjoys full powers. This is to avoid setting a precedent that could affect the powers of future resigned governments.

Of course, without an emergency meeting, the issue will have to wait until the new government is formed. Yet, the government formation is difficult in light of the polarization of Lebanese political forces concerning this issue. The energy minister had called for an extraordinary meeting of the caretaker government to fulfill the ministry's obligations to international companies and to move forward with the first round of bidding, without more delays.

At the same time, other differences emerged. These include: Why was it decided that there should only be 10 offshore blocks? Should they all be licensed during the first round of bidding, or should limited blocks (two or three) be gradually licensed? This was the topic of a broad disagreement that broke out between Bassil, who supports the second option, and the Parliament Speaker Nabih Berri, who supports the first.

Of course, these questions should have been directed at the Petroleum Administration, which is the organization responsible for drawing up these blocks. This administration is the party that has the data and information needed for answers, and is supposed to have drawn up blocks based on the results of 3-D seismic surveys. It is also expected that the parliamentary Energy Committee would discuss this matter last, after it is discussed and approved by the cabinet.  

One of the major problems related to oil exploration in the eastern Mediterranean is the absence of an approved maritime border among countries of the region (Palestine, Israel, Lebanon, Syria, Cyprus and Turkey). This is needed before agreements are signed with companies and before drilling and exploration begins. What complicates matters further is that some regional countries occupy parts of neighboring countries or carry out aggressions on the latter. It is also worth noting that some of these countries are in a state of war, and there are historical ambitions and disputes. For example, there is issue surrounding the Gaza Marine gas field, which was discovered in Palestinian waters in 2003, but has not yet been developed because of Israeli pressures.

Israel began gas exploration efforts in its southern waters at the beginning of the last decade, yet most of the fields were very small and adjacent to Palestinian waters. But in 2009, Israel began discovering important fields in its northern waters, near Lebanese and Cypriot territorial waters. These discoveries led to an exchange of accusations and threats between Israel and Lebanon, further complicating the existing maritime border disputes. Israel announced that it was forming special marine units to protect its oil rigs, while Hezbollah threatened to attack these rigs if Israel drilled for oil in Lebanese waters. Meanwhile, Israel threatened to resort to force or to the courts if Lebanon drilled in its waters. There was also a lot of unofficial talk in Lebanese circles about Israel stealing gas from Lebanese fields using horizontal drilling. No official statement was released concerning this matter, only warnings that this was a possibility in the future.

Why then, were all maritime exploration areas available to Lebanon included in the first round of bidding? And what is the goal of drawing up only 10 blocks? Finally, should international companies be granted contracts all at once or gradually?

The reason for trying to assign contracts for all maritime areas at once has to do with a desire to find out precise information about the region's geology early on. The reasons that only 10 wide blocks were drawn up has to do with the technical data available to the Petroleum Administration, which supposedly relied on 3-D surveys in drawing up the blocks.

Awarding contracts all at once means assigning a contract for each block. The idea of granting contracts gradually has sparked fears — which I think are misplaced — except for blocks 8, 9 and 10 in the south. It was clear from the beginning that the blocks were drawn up to cover all of Lebanon's waters.

Some wonder why the government is rushing to award contracts. However, what is at stake here is Lebanon's professional reputation in the petroleum industry, particularly given that Lebanon is new to this field. Every time there is a delay in the first bidding round, which was announced a while back, Lebanon's professional credibility is shaken.

In addition, neighboring countries such as Israel and Cyprus are years ahead in the petroleum field. Those calling for the bidding round to be delayed fear that the petroleum industry in Lebanon could start on the wrong track — marred by rumors and clamor — if the current practices continue. At the same time, officials are demanding that the necessary measures be taken to start the first round for bidding and awarding contracts, to save Lebanon's reputation. It is worth mentioning that there are only a few specialized companies that are able to carry out drilling and production at a depth of 20,000 feet below sea level, and competition is strong to attract them. This is because they have other opportunities to operate in East Africa, Brazil, Angola and the North Sea.

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