Lebanon and Italy Vow Increased Energy Cooperation

Lebanese Prime Minister Tamam Salam met his Italian counterpart Matteo Renzi in Beirut on Tuesday. The two leaders discussed ways of strengthening bilateral ties, particularly in the field of energy. The Lebanese Prime Minister stressed on the importance of Italy’s expertise in the oil and gas sector, and the increasing role it is playing in the Eastern Mediterranean region. In a joint press conference, Tamam vowed to increase his efforts to help Lebanon open its first licensing round. The country’s first offshore bidding has been delayed by the government’s inability to issue two essential decrees that would delineate the offshore blocks open for bidding and lay out a model sharing exploration agreement.

Italy’s ENI is already involved in the region. It holds licenses for drilling in Blocks 2, 3 and 9 of Cyprus’ Exclusive Economic Zone. ENI commenced exploration activities in Block 9 of Cyprus’ waters, but its two drillings in this block did not lead to any discovery. The company is however committed to pursue its search efforts off the island's coast. ENI’s drilling in Egyptian waters proved to be more fruitful. In August 2015, the Italian giant discovered a massive field, Zohr, located in the Shorouk Block in close vicinity to Cypriot waters and estimated to hold up to 30 Tcf of natural gas. The discovery not only reinforces ENI’s presence in the Eastern Mediterranean but also gives a great boost for the neighbouring countries in their exploration activities.

ENI’s Zohr discovery is likely to end Egypt’s natural gas shortages in the medium term. The country is still looking to import natural gas from its neighbours as an interim solution to attend the pressing needs of its population. A growing consumption, a flat production and export obligations have led the country into a severe energy crisis. Cypriot gas, from the Aphrodite field, could provide Egypt with temporary relief. Egypt was also considering Israeli gas, but recent tensions may block such a gas deal from being sealed.

Lebanon attracted substantial interest when the country opened a pre-qualification round in Spring of 2013. Major oil and gas companies expressed interest to tap into Lebanon’s potential hydrocarbon wealth. Out of 52 international companies that applied, 46 were successful, 12 as right-holders Operators (including Exxon Mobil, Shell, Chevron, Statoil, ENI, Maersk, TOTAL), and 34 as right-holders non Operators. The political vacuum suffered by the country leading to the major delays in opening the licensing round may deter those companies from any involvement in Lebanon. Investors are said to be losing patience, and faith in the country's ability to lead the process to fruition. The progress in the neighbouring countries, including Cyprus, Israel and Egypt may play to Lebanon’s disadvantage, unless the pending pieces of legislation are issued fast and efficient progress follows.

Karen Ayat is an analyst and Associate Partner at Natural Gas Europe focused on energy geopolitics. Karen is also a co-founder of the Lebanese Oil and Gas Initiative (LOGI). She holds an LLM in Commercial Law from City University London and a Bachelor of Laws from Université Saint Joseph in Beirut. Email Karen karen@minoils.com Follow her on Twitter: @karenayat