They finally dit it. ENI, TotalEnergies and QatarEnergy signed the long-awaited agreement with the caretaker Lebanese government on January 29. QatarEnergy joined this consortium following the withdrawal of Russia from the agreement. According to preliminary survey data of offshore oil fields in Lebanon, there are around 30 trillion cubic feet of natural gas as well as 660 million barrels of oil within its exclusive economic zone. In a statement, Lebanon’s energy minister Walid Fayad said, production could begin within four years. But in a land of confusion such as Lebanon, let’s be careful with promises coming from the Lebanese government. The foreign partners must be cautious, even though the Lebanese potential seems promising.
According to Lebanese authorities, a survey on the oil and gas fields has been completed on 70% of the country’s territorial waters covering an area of around 5,791 square miles (15,000 square kilometers).
“In just 10 percent of that area… we have 30 trillion cubic feet (850 million cubic meters) of gas and 660 million barrels of oil,” said Fayad while adding, the amounts were “very large and promising as initial estimates.”
Theoretically, production from these reserves are linked to the speed of exploration phases and the installation of wells, which “theoretically ranges from three to seven years.” In practical terms, the process is complicated since it will have to go through the country’s fragile political climate, which is likely to lead of delays.
While Lebanon has exploitable natural resources within its exclusive economic zone, it has taken its sweet time to exploit maritime resources in comparison with eastern Mediterranean countries, including Cyprus, Israel, and Turkey.
Headwinds
Way back in 2012, a seismic study on a limited offshore area by Spectrum, a British firm, found recoverable gas reserves of at least 25.4 trillion cubic feet (tcf).
Unfortunately, Block 9 house to the Qana field, which is also known as the Sidon reservoir, is close to the border with Israel. As expected, Israel has laid claims on portions of the field. Potions claimed by Lebanon for offshore exploration have been contracted to TotalEnergies and ENI in 2018.
According to energy consultant Rudi Baroudi, while it is feasible to commence oil and gas production within a short span, to do so Lebanon needs to be serious about its economy and implement reforms.
“Lebanon is not a good investment unless the government implements reforms,” said Baroudi. They will provide “the basic assurances that international companies need to work with less risk”.
Government indecisions and governance paralysis are largely responsible for the economic crisis weighing down its economy. Despite mounting pressure from foreign donors, including the International Monetary Fund, economic reforms aimed at salvaging the economy is yet to take off.
Despite Lebanon having abundant energy reserves in terms of oil and gas, the government continues to tie itself in knots and struggles to provide more than 2 hours of electricity a day, forcing global energy companies to work on Lebanese projects out of Cyprus, said Baroudi.
“With no rule of law, Lebanon is a jungle,” said Baroudi while adding, “It’s absolute chaos, whether judicially, financially or in terms of regulatory” bodies.
Economic Collaboration is Key
Despite these strong headwinds, in October 2022, Lebanon, under a US-brokered accord, signed a deal with Israel, which delimits their maritime borders. This is hugely significant since technically both countries are at war.
The historic agreement paves way for Beirut to begin exploration in the Qana reservoir, which incidentally is partly located inside Israel’s territorial waters, in return for monetary compensations.
The agreement essentially greenlights Beirut’s exploration of the Qana reservoir following the signing of the landmark agreement which demarcates its maritime borders with Israel. According to Lebanese caretaker Prime Minister Najib Mikati, the deal also sees the involvement of Qatar with Doha’s state-backed giant QatarEnergy taking a minority 30% stake in two blocks of Lebanon’s exclusive economic zone.
“Qatar’s entry into the consortium is above all politically significant,” said Naji Abi Aad, an energy consultant. Qatar’s involvement in the historic deal “brings a political guarantee” to the table allowing Lebanon to mitigate other economic crises.
This landmark deal was signed by Lebanese Energy Minister Walid Fayad and his Qatari counterpart Saad al-Kaabi, and the chief of France’s TotalEnergies, on Sunday, February 5, 2023.
Following the signing ceremony, during a press conference, Kaabi stated Qatar’s involvement was an “opportunity to support Lebanon’s economic development”.
Reaffirming expectations, TotalEnergies’ Patrick Pouyanné said, he expects the exploration phase of the Qana project to be completed “within the next 12 months”, and that it would result in the discoveries of hydrocarbons.
Analysts agree that realistically it will take a few years before Lebanon is able to begin the exploiting of the Qana field, if a commercially viable discovery is made.
“You need an infrastructure to export the gas, which currently does not exist,” said Abi Aad, while adding, a coastal pipeline would also be required for the domestic supply of LNG.
The potential to exploit energy resources is certainly there with Israel being a case in point. Tel Aviv already delivers LNG to Jordan and Egypt and in June 2022 signed a deal to supply it to Europe using Egyptian infrastructure, with last mile deliveries being done via shipments.
But as we wrote here in 2020 on ByTheEast, “without structural reforms, oil money won’t help Lebanon as many countries before, in Africa or South America. Lebanon’s institutions must improve before the economy can reap the benefits of this natural wealth and offset the negative volatility effects of oil revenue”. Since then, nothing did improve, things only got worse. Political mafias are still in charge. Let’s pray that Lebanon won’t be the next ‘oil-cursed’ country.
