New Lebanon government good news for gas exploration tender

Numerous obstacles to plans, but first blocks set to be sold on April 10.

An estimated 96 trillion cubic feet of natural gas is sitting under Lebanon’s waters, but a tender for gas companies to build exploratory wells has hit one political snag after another.

Yet as a new coalition government with a new energy minister takes power, it looks more likely that Lebanon’s auction of exploration rights will proceed on schedule, with the first blocks set to be sold on April 10.

For 315 days spanning this year and last, Lebanon was without a government.

The appointment of a new government is “a big step forward”, said Catherine Hunter, who leads the energy team at IHS Global Insight, a think tank. “It allows some of the outstanding regulatory issues to be resolved … [but] with new faces involved, there’s still some potential for slippage.”

Mubadala Petroleum, Rosneft and ExxonMobil, along with 30 other companies, expressed interest in exploratory drilling early last year, but a deadlocked parliament, in which Hizbollah-backed members hold veto power, failed to pass required legislation.

And further political instability could yet affect the timing of the auction, Ms Hunter said, because Lebanon’s cabinet is required to sign off on several additional technical issues.

Discoveries of natural resources could be a boon to Lebanon’s economy, which has suffered as conflict in Syria spills over into the country. Tourism has dipped following a spate of car bombings in the capital, with occupancy rates falling and room yields dropping by 21 per cent in 2013 on the previous year, according to data from Byblos bank.

“[It’s] difficult to say what the impact of gas discoveries will be for this decade,” said Ms Hunter, but “natural gas potentially provides a means to reduce oil product imports and boost power generation capacity if the volumes discovered are commercially viable”.

Naji Abi Aad, the chief operating officer of PetroLeb, a company that intends to bid to manage areas of gas exploration, was optimistic about the impact of discoveries. “According to the various seismic studies and interpretations, Lebanon has very promising petroleum prospects in its territorial waters,” he said. “We are confident that ... developing [the country’s resources] will bring economic prosperity to Lebanon and its population.”

A spokesman from the Dutch oil company Shell, which has prequalified to bid to explore Lebanon’s waters, said: “Shell looks at business opportunities in Lebanon in the same way as any other potential interest.

“We review our growth portfolio on a regular basis and do not exclude any countries that are open to foreign investment.”

And Robin Mills, head of consulting at Manaar Energy, said that Lebanon was well-placed on the demand side to produce gas for export. Unlike neighbouring Cyprus and Israel, Lebanon has a ready supply route to export gas to Turkey, which consumed 1.59 trillion cubic feet of gas in 2012, according to the International Energy Agency.

But politics has complicated the management of the country’s potential reserves. “Desire for control over a future strategic resource has resulted in clashes over key roles within the sector – firstly within the Petroleum Administration and more recently, at the energy ministry itself,” said Ms Hunter.

It took two years to finalise appointments to Lebanon’s Petroleum Administration, as parties vied to claim control over the oil and gas regulator.

And wrangling looked set to postpone the auction beyond its mooted April date when Michel Aoun, leader of a pro-Syrian party, held up the formation of a new cabinet after demanding that his party, the Hizbollah-allied Free Patriotic Movement, retain the energy portfolio. A compromise was reached in which the Armenian Revolutionary Federation (ARF) politician Arthur Nazarian took the job, clearing the way for a new government.

The ARF is a member of the pro-Syrian March 8 coalition – named after a rally intended to express gratitude for Syria’s role in Lebanese politics – and is also allied with Hizbollah.

The post was previously held by Mr Aoun’s son-in-law, Gebran Bassil, who is now the country’s foreign minister.