Oil and gas is a much contested topic in Lebanon. There is so much euphoria among the Lebanese, especially the politicians and oil experts, each with their own visions and plans, each with their own agendas and interests. Lebanon’s oil and gas has caught everyone’s imagination. The political factions, with their business oligarchy subdivisions and militias, managed to collude to kick-start Lebanon’s oil race and form the Petroleum Administration, the governing body for the oil and gas sector, during the tenure of the Mikati government. Fifty-two companies vied for Lebanon’s oil and gas during the first licensing round. But with international interest in Lebanon's hydrocarbon reserves dwindling, or at least temporarily stalled because of the crises in the region, many specialists are echoing Citibank’s research: Will it be Cinderella or Sleeping Beauty?
Oil or gas?
Oil or natural gas? In the early stages of exploration, this question remains a game of guessing. It is also far more loaded than its simplicity implies. Far from just being different products, they are two different markets, two different supply chains and infrastructure, two different policy strategies and two different income prospectuses. The data show accumulations of both oil and gas, technically lumped under one category: hydrocarbons.
Nevertheless, marketing interviews by the seismic acquisition companies PGS and Spectrum have focused more on natural gas, with government officials echoing this rhetoric. The public discourse emphasizes the word "petroleum" or "oil." The inability of the Lebanese to use the word "hydrocarbon" in Arabic, switching instead between "petroleum" and "natural gas," has not only swayed the public discourse on hydrocarbon development in Lebanon away from development reality, but has also shaped uninformed policy direction at the official level, creating a schizophrenic approach to oil and gas development in Lebanon.
Lebanon is still in the early stage of surveying. Exploration, the next step, is the process for looking for hydrocarbons. It does not matter whether it involves oil or gas at the beginning, the objective being the discovery of commercial accumulations that can be extracted. Lebanon stands, if one assumes a streamlined and transparent process, around two to three years away from concluding the initial exploration phase and starting the next one, reservoir development for the explored basin, assuming a successful exploration stage.
Only after development, where the size of the hydrocarbon accumulation and the physical properties of the reservoir are identified, will one know and the decision be made, oil or gas or both. Once the decision is made to exploit the reservoir, production starts (after reservoir development, which could take, optimistically, another three to five years if the reservoirs turn out not to be as complex as assumed). Production of either or both takes different rig types, and since gas is compressed in the subsurface, different storage and transportation facilities are needed.
The brunt of development and the up front costs will all be paid by the licensed companies. Oil companies calculate their risks, but does the Lebanese government? With the government's official position being to manage the proceeds and the strategic direction of the oil and gas sector, leaving development to a laissez-faire model, it is as susceptible to risk as the exploration companies, not only in the exploration period, but beyond it.
After the call for expressions of interest in the first licensing round, the list of companies “interested” in exploring hydrocarbon reserves was leaked, even before the “courting” period had ended. Disregarding the purposes of the leak, the lack of transparency it signaled, and which by now everyone is aware of, the Lebanese energy minister hailed the process an example of the global interest in Lebanese hydrocarbon reserves. The list of companies was then duly published. It included 14 operators and 38 non-operators, all presented to showcase that big companies are primed and ready to explore Lebanon’s hydrocarbon fields.
The list of companies is quite interesting. The Chinese, hungry for all sources of energy, have only reluctantly shown interest in Lebanon’s reserves. Entering the list of pre-qualifiers as the only “non-stated” company, the Chinese are still yet to determine where they fit in the East Med energy map. If China’s hesitation shows anything, however, it is the reluctance of a superpower — with national oil companies that have ventured into the least transparent deals with the most opaque of governments — to step in to one of the world's murkiest geopolitical subregions.
Let the tail not wag the dog and let geopolitics get in the way. Many analysts overdo it with regional tensions analysis and maritime border delineation while looking into Lebanon's development of oil and gas. Lebanon’s challenges, however, begin with smaller hurdles.
Many have misread the fervor of the UK's ambassador to Lebanon and the visit by the British foreign minister as a pure lobbying effort on behalf of British companies and geopolitical posturing to secure guaranteed oil reserves. In fact, however, all but one of the interested companies under the UK category of companies are merely stock-listed companies with negative operating incomes vying for non-operating roles. One cannot but wonder, why the world’s foremost, technically enabled and experienced deepwater operator, BP, would not be interested given such a frenzy of diplomatic activity.
Of course, the issue remains of the other international oil companies (IOCs), including Shell, Total, ExxonMobil and Chevron. The IOCs will bring to Lebanon a combination of established expertise, enabled financing and resource mobilization and polished foreign policy machinery to ensure smooth operations. But the dichotomy between the IOCs interested in Lebanon and only independent companies performing exploration in Israel and Cyprus is an odd one. Are these companies willing to risk now-guaranteed reserves in Israel and Cyprus for an uncertain escapade in Lebanon?
The bottom line for Lebanon is to balance the potential promise of hydrocarbon finds with the need for good governance and transparency. The two have not necessarily gone hand in hand, especially in the Middle East, given the demands and constraints of the region's crises and challenges.
Hadi Fathallah is a policy adviser at the Middle East Prospects Forum, a think tank based in Beirut, Lebanon. Hadi is a fellow of the Cornell Institute for Public Affairs at Cornell University. This article is part of a policy research series conducted by the O&G Working Group at the Middle East Prospects Forum (MEPF). Ramadan Ghalayini, researcher at IFP-EN/UPMC, Paris, contributed technical consultation as external expert. This article does not reflect or represent the official position of MEPF or any other entity and should not be considered under any circumstances as political and policy advice.
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