Lebanon’s gas boom dead in the water?

Lebanon needs clarity on viable options with potential offshore hydrocarbons reserves. And recent update on this game-changer matter is not in favour of Lebanese government.

lebanon oil gas
The discovery of offshore hydrocarbons in the Eastern Mediterranean and the Lebanese waters has sparked intense diplomatic activity. © Creative common

Lebanon’s quest for gas and oil has so far yielded no meaningful results with the country’s first-ever offshore search for hydrocarbons throwing up commercially unviable results. “No matter where you turn, the Eastern Mediterranean energy picture is bleak,”as stated by Gabriel Mitchell in his report published on War On The Rocks. “Debt-ridden Lebanon was dismayed by news in late April that initial explorations failed to uncover a meaningful gas field. Politicians in Beirut dreamed that offshore discoveries would deliver an instant economic windfall. But with energy companies announcing a suspension of activities in Cyprus’s waters just a week later — the same companies exploring Lebanese waters — the Lebanese government will have to search elsewhere for a financial bailout.”

In a statement last week, Lebanon’s Energy Minister Raymond Ghajar said, no gas or commercial reservoirs have been found off Lebanon’s coast. The results of initial drilling, which found the presence of gas at different geological layers at different depths, had raised hopes and dreams of oil-bound riches; these however faded away following 2 months of drilling which found of traces of gas.

The discover of a major hydrocarbon reserves could have significantly boosted Lebanon’s debt-burdened economy, which is weighed down with a debt equivalent to 170% of its gross domestic product.

However, data and experienced gathered while drilling in Block 4 will be used to strategize how best to probe Block 9; exploration on this sector is however tricky and will e akin to walking on a tight rope given that Israel has also claimed ownership of it.

It is to be seen, how the consortium of France’s Total, Italy’s Eni, and Russia’s Novatek along with the Lebanese government find a workable solution given regional dynamics and the fact that  Block 9 is near the Israeli border.

Pregnant with hope

The Levantine Basin in the Eastern Mediterranean had earlier produced some fantastic discoveries, especially in the early days of exploration – early 2010s – when Israel’s Leviathan and Egypt’s Zohr significantly boosted their respective economies. Thus when Lebanon awarded three Blocks in its offshore zone to the European consortium, it gave birth to dreams and hopes that a standard-bearer nay be born.

The first signs of uncertainty came with ExxonMobil announcing that it would postpone two exploration wells next to its 2019 Glaucus discovery; these were further aggravated by the ENI-Total consortium adjourning appraisal works on their 2018 Calypso discovery, which effectively brought drilling activity to a stand still this year. The dreams vanished when the Total consortium stated, Lebanon’s first-ever exploration well, the Byblos-1, in Block 04 was dry.

Things could however turn out for the better if exploration in Block 9 is not postponned. The consortium’s second well is planned for exploration later this year, although there are murmurings that it may be postponed to the firat quarter of 2021.

At this juncture, it is worth noting that the Byblos-1 well was spudded to a total depth of 4076 metres. The well’s prospect was based on seismic surveying, which are located around 30 km from Lebanon’s shoreline. It was drilled in water depths of 1500-1700 metres. By targeting the Lower Miocene, the consortium adopted a conservative approach; had it drilled to the Mesozoic layer the findings could have been different albeit at higher risks. Although the exploration found some gas deposits, they are so far, not comparable with Israel’s first offshore discoveries.

Future outlook

While the offshore hydrocarbon explorations were on, Lebanon’s Energy Ministry concurrently launched the second Offshore Licensing Round in 2019 with results expected to be announced after April 30 – the date for the extended submission of the deadline.

The second round of Offshore Licensing includes Block 1, 8 and 10 of the first round which included Blocks 1, 2, 5, 8 and 10. The three have been included again since they did not generate any bidding interest in the first round.

Expectations for the auctioning of Block 5 is high given that it falls withing a hotly-contested part given that preliminary reserve assessments place its reserve base at almost double of Block 4, which  incidentally was considered by many to be the prime spot for drilling in Lebanon’s offshore exploration zone. Again, companies are not allowed to explore alone but have to team up with at least 2 others in order for their bids to be successful.

Given that surveying works on assessing Lebanon’s resource are still work in progress, it is challenging to arrive at a credible approximation of the Levantine nation’s reserves. Going by the initial estimates by Lebanon’s Energy Ministry its EEZ should contain around 30 TCf of natural gas and 660 MMbbls of oil. In 2013, these figure were revised by the then-Minister Jibran Basil, to 96 TCf and 865 Mmbbls, respectively.

According to the results of the first 3D seismic survey in Lebanon’s EEZ, its recoverable gas reserve was at 25.4 Tcf. While this acted as a magnet for investors, and was a laudable effort on the part of Lebanon’s Energy Ministry, there is the very real possibility that the hype could create a bubble of overblown high expectations, which might be ultimately difficult to realise.

Incidentally, so far there has been little discourse as to what to do with Lebanon’s offshore hydrocarbons, once they are found and deemed commercially viable. Currently, the country’s usage of natural gas is negligible, although it does import oil and crude oil products; if there is any delay on commercialization its potential offshore gas, it is likely to be at the detriment of domestic customers. So far, the bulk of Lebanon’s offshore explorations has been framed around the premise of Beirut exporting liquefied natural gas (LNG) to its immediate neighbours. With European LNG prices bottoming out, tapping that market is unviable. Doing so will have diplomatic repercussions from Turkey.

Let’s try to see the glass half full in this story. This non-discovery could mean that Lebanon won’t be the next “oil-cursed” country.