February 28, 2014
BEIRUT,
Lebanon — A country without political stability and consequently without good
governance is a country with no encouraging future. And Lebanon exactly
epitomizes a condition of chronic political
instability now exacerbated by the possible spillover of the civil war ravaging
neighboring Syria. In addition to this, in Lebanon there are more than one
million of Syrian refugees, whom the already well-strained Lebanese economy is
unable to accommodate. Following recent years' discoveries of relevant
quantities of oil and gas — current estimates speak of 1.7 billion
barrels of oil and 123.6 trillion cubic feet of gas — in the Levant Basin, in the
eastern Mediterranean, Lebanon is now trying to develop its oil and gas sector, which could spur
that much needed economic growth and reduce the country's public debt standing in
2013 at 145.9 percent of G.D.P. The problem is that under the current political
instability, internal as well as external, such an endeavor is almost an
impossible target. Not to mention the security of Lebanon where Al-Qaeda-linked
explosions now occur almost on a weekly basis.
Proof
of Lebanon's difficulties is the fact that of the countries touched by the
Levant Basin — Syria, Lebanon, Israel, Gaza and Cyprus — in the oil and gas business Lebanon
is consistently behind schedule, notwithstanding that it could probably have the
largest reserves. For instance, it's quite impressive that after two and a half
years of war, Syria, as recently as last December, signed a deal with Soyuzneftegaz,
a Russian state-controlled energy group, with reference to the rights to develop and to
produce oil and gas off Syria's coast. Similarly, Cyprus is implementing its gas
licensing rounds and wants to build an L.N.G. export terminal, while Israel already
carried out its first gas delivery on March 31, 2013, and recently signed a
deal with two Jordanian firms to sell $500 million of gas — first agreement of
this type outside of Israel. In Gaza, after years of embittered relations
between Israel and Gaza over territorial waters, the Palestinian Authority and
Russia are in talks to sign an agreement permitting Russia to develop Gaza's
offshore gas fields.
In
Lebanon, 2D and 3D seismic surveys offered positive results and brought the
previous minister of energy and water, Gebran Bassil — he
is now foreign minister — to affirm that the country could have, under a 50
percent probability, 95.9 trillion cubic feet (TCF) of gas and 865 million barrels (MMBL) of
oil. Last year, forty-six companies prequalified to bid for the Lebanese offshore
gas riches, which had been split among 10 sea blocks. Last November, the
government should have held the auction for these blocks, but since then this
auction has been postponed three times and its official deadline is now April
10, 2014. This postponement is linked to the government's inability to approve
two decrees that deal with the demarcation of the sea blocks and the clarification
of the financial features of the energy contracts. Despite possible
interesting reserves, oil and gas companies with difficulty could be lured into
investing without plain details.
 |
| Minister of Foreign Affairs Gibran Bassil (previously minister of energy and water) |
Will
this auction be postponed one more time? It's probable. But here one
consideration stands out immediately. The real problem for Lebanon is not what
to include in the two fundamental decrees. Lebanon is not the first country nor
the last that will have to strike a balance between its economic interests and
those of the energy companies. In the oil and gas sector — where there are always important
sunk costs — there is constantly a balance between the involved parties. And
similarly, developing reserves in deep waters, like for instance those of
Lebanon, is not anymore an impossible task for international oil and gas companies.
It could cost more, but again we go back to striking a fair balance between the
hosting state, on the one side, and the companies, on the other side. So what is
stopping Lebanon from developing its energy sector? The answer is simple: its political
instability, which now is increasing thanks to the Syrian civil war.
In
fact, also during normal times, politics in Lebanon is difficult because it's
based on sectarian divisions. According to the country's Constitution, the
president of the republic has to be a Christian Maronite, the prime minister a Sunni
and the speaker of the Parliament a Shia. Furthermore, the seats in the
Parliament are divided on a sectarian basis as well. After the resignation of Prime
Minister Najib Mikati in
March 2013, a caretaker government was in charge for almost one year.
Only on February 15, 2014, a new government was formed with Mr. Tammam Salam as prime minister.
At present, the new government is drafting its policy statement, which later the
Parliament will have to approve. Drafting this document is not easy because
there is the controversial issue of how to define the presence in Lebanon of
the armed resistance embodied by Hezbollah. At the same time, this new
government is perceived as temporary because it should be in charge until May's
presidential elections, unless the political factions are not able to reach an
agreement on the new president. Moreover, to an already complicated domestic political
environment, the Syrian crisis has added further complexities: The Lebanese
politicians are now divided between those who support Syria's government forces and those who rather favor the opposition to Bashar al-Assad.
 |
| Lebanon's First Offshore Licensing Round |
Besides, the Sunni-Shia conflict is well evident in relation to the energy issue. Indeed, on the one side, the two still-to-be-signed
energy decrees have found strong opposition from the March 14 Alliance (a Sunni
and Christian alliance whose main party is the Future Movement, a Sunni party),
which is close to Saudi Arabia, a country that does not see with great favor
the establishment of an upstream oil and gas sector in Lebanon. On the other side,
the pro-Iran March 8 Alliance (a Christian and Shia alliance, whose main
parties are the Free Patriotic Movement, a Christian party, and Hezbollah, a
Shia party) supports the development of the energy sector. It's still premature
to know whether the newly appointed Minister of Energy and Water Arthur Nazarian, an Armenian, will speed up the development
of the energy sector. But one consideration stands out immediately: Considering
that this winter in Lebanon has been almost completely without rainfalls, it's
probable that Mr. Nazarian's first concern will be the availability of water
for the agriculture sector and for a population that with the Syrian refugees
has increased by 25 percent — from 4 million to 5 million at least.
Summing
up, it's very difficult that the political agenda of the next months may
include a real advancement of the energy dossier in Lebanon. It's a sort of
irony that during last year's political debates many local politicians discussed
how to invest the future energy profits so as to avoid the so-called resource
curse, although with Lebanon's proposed contracts (production sharing agreements)
profits are postponed to the beginning of production. And in Lebanon if we
started to develop the energy sector tomorrow, it would take at least six to seven years
before we could get oil or gas. But again, without political stability and good governance it's quite difficult that
Lebanon will establish its oil and gas sector.
For more information about the development of an energy sector in Lebanon please see:
- BACCI, A., Lebanon's Offshore Gas Resources: It's Time to Decide, April 2013
- BACCI, A., Forty-Six I.O.C.s Will Bid for Lebanon's Offshore Hydrocarbon Exploration, April 2013
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.