Timing Is Key For Lebanese Gas, Production Unlikely Before 2025

The political complexities within Lebanon are the major factors likely to postpone offshore gas production to at least 2025. At the same time, external factors are further worsening the prospects of the Mediterranean country as a gas producer - border disputes with Israel and Syria would slow down even the most resolute and united Lebanese government, Bassam Fattouh, Director of the Oxford Institute for Energy Studies, said on Monday.

“It is unlikely that we will start production by early 2020s… I would say 2025 if we are lucky, if things really start to moving” Fattouh commented.  

Reminding that Lebanese parliament failed to elect a new president and that the “unstable government” has paralysed the decision-making process, he does not see any bidding round by the end of 2015. He also dismissed the idea of gas imports in the next months - Lebanon will continue to rely on fuel oil at least for the next 2-3 years. 

THE GAS MARKETS WILL LOOK VERY DIFFERENT IN 2025-2030 

According to the expert who took part in the debate organised by German Marshall Fund of the United States in Brussels, these uncertainties in timing will bring along additional difficulties, as strategies to develop the offshore resources also rely on partnerships with other countries and markets that, in the meanwhile, will probably find alternative sources of gas. 

“By mid 2020s, there will be a lot of competition from new exporters like East Africa, Australia, and the US” he added, referring to LNG, the most flexible solution to export gas.  

Fattouh reminded that the gas markets will look very different in 2025-2030.  

Turkey, which would be the easiest export destination given the existing pipeline, is likely to meet its demand through contracts with third countries. Against this backdrop, delays with two decrees essential for the bidding round do not come in handy - companies need to know the Lebanon’s territorial sea and exclusive economic zone (first decree), and the provisions of future Exploration and Production Agreements (second decree). 

This slow approach could end up taking the appetite of big international companies away. Especially given the current market conditions, not many cannot embark on overly risky activities.  

Following the pre-qualification round launched at the beginning of 2013, 50 international companies registered interest, including majors like Total, ENI, Shell, Statoil, Chevron, and ExxonMobil. At the moment, nobody really knows how many of these 50 firms would be still interested. 

WARNING: DON’T TRY TO REPLICATE SUCCESS STORIES

Mentioning blocks 8, 9, and 10, Fattouh warned Beirut to avoid falling prey to its constituencies, which are likely to put pressure on Lebanese authorities to grant some blocks in disputed areas. Eventual arm-wrestling over contested waters with Israel would complicate future exploration and exploitation efforts.  

In this sense, there is no need to add more detrimental ramifications - there are already enough clashing interests. 

Despite the grim picture, the Director of the Oxford Institute for Energy Studies said that Beirut can find its way out of the deadlock, capitalising on the existing expertise of the Lebanese Petroleum Administration (LPA) - the body responsible for the management, monitoring, and supervision of petroleum activities. 

‘The LPA, however, is not an autonomous body and falls under the tutelage of the Ministry of Energy and Water Resources and, indirectly, is reliant on the Council of Ministers for key decisions regarding the hydrocarbon sector’ reads a recent paper written by Fattouh and Laura El-Katiri. 

The take-home message here is that Lebanon has to wiggle its way out of the pressure coming from success stories of other gas-rich countries, while avoiding the mistakes already made by some net gas exporters (or former net exporters like Egypt). 

‘Once energy subsidies are introduced, they are very difficult to reverse, reducing macroeconomic policy flexibility’ Fattouh and El-Katiri wrote in their paper. 

SO WHAT?

In conclusion, politicians are called on to avoid using gas as campaign instrument and avoid false hopes - the billboards along Lebanese highways promising big changes funded by hydrocarbons could easily backlash. 

Despite the political difficulties ranging from strong local interests to cumbersome neighbours passing through internal religious diversity, the “Paris of the Middle East” has to find its own receipt to cut its imports of oil - which represent 11.4% of its GDP - and to use its gas in its two combined cycle gas turbine (CCGT) plants.

Then, after knowing whether the recoverable offshore gas reserves are closer to 25.4 Tcf estimated by Norway's Spectrum or to 95.5 Tcf envisaged by former acting minister of energy Jibran Basil, the country will be able to understand whether and how to export. Exports could be of great help to reduce the state’s debt, estimated at 146% of GDP in 2014.

But, as said, the time is not come to understand the future prospects of Lebanese gas. Now it is the right moment to understand Lebanese politics, and whether they will be able to overcome incredible problems to find a solution for everybody.

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci