Lebanon’s high-risk offshore Oil and Gas boom
By Dr. Cyril Widdershoven – Berry Commodities – Global Head of Strategy & Risk
The least known offshore oil and gas frontier in the East-Mediterranean, Lebanon is preparing itself for a possible entrance into the producer?s league.
At the end of 2019, most probably November ? December, offshore drilling is expected to start, targeting some prolific basins. The offshore success stories in Israel, Cyprus and Egypt, have supported the appetite of Beirut to take the plunge too. Nada Boustani, Lebanon?s Minister of Energy and Water, also reiterated that the country?s second licensing round is receiving lots of interest. Lebanon estimates its natural gas reserves at 25 trillion cubic feet (tcf) based on seismic studies, but these have not been confirmed by drilling and may not amount to reserves that are commercially viable.
At present, pushed by US president Trump?s Administration, unofficial discussions are ongoing between Lebanon and Israel about the demarcation of the maritime borders. Until now, the maritime border issue, as both countries are still officially at war, has been a major obstacle for international oil and gas companies to commit serious resources. Some of the blocks on offer by Beirut are in the disputed area or are already partly being explored by Israel.
At the same time, Lebanon is facing an increased amount of internal unrest, mainly due to the detrimental influence of Lebanon?s main Shi?a power player Hezbollah, which is holding a stranglehold on the country?s political stability since the end of the Civil War. Hezbollah?s power struggle, combined with the latter?s involvement and support for the Bashar regime in Syria, is seen by international investors and the US, supported by most Arab countries, as a very high risk. The still brewing military confrontation in the Persian Gulf is expected to have an impact on Lebanon if the conflict explodes. Hezbollah, possibly joined by Hamas, will try to attack Israel if Iran will find itself at war in the Gulf analysts indicate. U.S. Secretary of State Mike Pompeo stated this week that Washington will be supporting ?a bright future for the people of Lebanon?. He reiterated that this will involve a full confrontation with Iranian backed Hezbollah. The U.S. is also pushing to be a mediator in Lebanon?s longstanding maritime border dispute with Israel. Clear maritime border are crucial in the development of Lebanon?s hydrocarbon reserves.
The coming months will show the path that Lebanon will be able to take. The government has at last been able to set up Lebanon?s petroleum fiscal framework, focusing on offshore. The current fiscal regime is known, and expected to be relatively stable. Beirut also has stated that new regulations are planned in the coming years, mainly for onshore oil and gas and the setup of a sovereign wealth fund (SWF).