An Israeli-Lebanese agreement, promising an unprecedented gas windfall, will be delayed. Lebanon is close to reaching an agreement with Israel over their disputed waters containing offshore hydrocarbon deposits, but the bankrupt country will have to wait years for a potential gas windfall, analysts say.
“An agreement would mark a step forward, but it does not mean that Lebanon has become a gas or oil producing country,” Marc Ayoub, a research associate at the Issam Fares Institute at the American University of Beirut, told AFP.
“We are talking about a delay of five to six years (..) before the first gas production”
The small Mediterranean country struggling with the worst economic crisis in its history is hoping that an offshore gas discovery will help it turn around its finances amid rising gas demand due to the global energy crisis.
More than a decade after adopting the delineation of its exclusive economic zone (EEZ), Lebanon has yet to announce that it has found any actual natural gas reserves.
A well drilled by a consortium of TotalEnergies, Eni and Novatek off central Lebanon in 2020 revealed only traces of gas but no commercially viable reservoir. Exploration, particularly near the border with Israel, has been hampered by the maritime border dispute between the two countries, which are still technically in a state of war.
After years of negotiations via American mediation, Lebanon and Israel are now close to an agreement, with both countries welcoming a proposal from Washington in early October.
An agreement would allow “offshore exploration activities to continue but it does not mean that Lebanon has become rich (…) or that its crisis has been solved,” Ayoub stressed.
– Corruption –
A 2012 seismic survey of an offshore area by the British company Spectrum estimated recoverable gas reserves in Lebanon at about 720 million cubic meters. Block 9, near the Israeli border, which contains the Qana field, will be a major area of offshore exploration by Total and Eni, who won the contract in 2018. After being partially claimed by Israel, the Qana field is expected to revert entirely to Lebanon under the maritime border agreement, according to Lebanese officials.
“By this time next year, we should know whether or not there is a commercial discovery in Qana,” Ayoub said.
If so, “it will take (…) no less than three to five years” before production can begin. This estimate, according to Mr. Ayoub, assumes that there is no delay on the part of the Lebanese authorities accused by a large part of the population of mismanagement and corruption.
Several tenders for offshore licenses have been delayed since their launch in 2013.
Lebanon is far behind Israel, which is preparing to activate the Karish offshore gas field once an agreement is reached, a key step to boost its natural gas exports to Europe.
Cyprus and Egypt have also begun to find significant reservoirs.
– Risky investment –
Production of gas or oil could begin within three years if reservoirs are discovered, according to energy consultant Roudi Baroudi. But Lebanon will have to implement a series of reforms if it wants to attract energy firms, he tells AFP.
“Lebanon is not a good investment if the government does not implement reforms,” says the expert.
The reforms would provide “the basic safeguards that international companies need to operate with less risk. State institutions have disintegrated under the weight of the crisis, with strikes by civil servants paralyzing most administrations.
More than three years after the onset of the financial crisis, no economic stimulus package has been put in place, despite increasing pressure from foreign donors and the International Monetary Fund (IMF).
And the political stalemate since the May legislative elections is delaying the formation of a new government, against the backdrop of fears of an upcoming presidential vacancy when Michel Aoun’s term expires at the end of October.
With a failed state unable to provide more than an hour of electricity a day, energy companies may choose to work on their projects in Lebanon from Cyprus, according to Baroudi.
“Without the rule of law, Lebanon is a jungle…It’s absolute chaos, whether it’s judicial, financial or in terms of regulatory bodies,” said the consultant.
