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Lebanon: The Oil & Gas Week, September 09, 2013

Lebanon – First licensing round:

September 2, 2013; Lebanon missed its rendezvous. After failing to adopt the two decrees that are essential for pursuing the first licensing round, the deadline for submitting bids was extended from November 4 to December 10. Caretaker Energy Minister Gebran Bassil announced the news in a press conference held on 04/09, during which he insisted that, if the two decrees are passed before October 2, 2013, the Ministry would still be able to respect its original program and deadlines. Considering that the local situation depends, to a great extend, on what happens in Syria, and since a potential strike is being prepared, it is extremely hard to predict whether a new cabinet will be formed by this time or not.

In a highly anticipated decision (originally expected in June 30), the Minister also revealed that blocks 1, 4, 5, 6 and 9 will be open for bidding, but did not exclude the possibility of adding other blocks as well. The promising Block 3, along the Lebanon-Cypriot borders is not included in the bid. Block 9, along the Lebanon-Israeli border, is just a few kilometers away from the Karish gas field in Israel (Block Alon C), the discovery of which sparked alarm in Lebanon that Israel could attempt to siphon off Lebanon’s gas.

Offshore blocks [Source: http://www.lpa.gov.lb]

The delay was expected, by the Lebanese and by foreign companies and partners. It is regrettable, but it is not a setback. In fact, avoiding it and respecting previously set deadlines would have been surprising. The regional context, resulting in a political deadlock that has prevented the formation of a new government since the resignation of Prime Minister Najib Mikati in March 2013, very few expected Lebanon to be able to meet its deadlines. It would have been an achievement. And this is precisely what Gebran Bassil was after. The caretaker minister was convinced that adhering to the program and meeting deadlines would send a strong message to Lebanon’s partners and assure them of its commitment. It would have also added to Bassil’s accomplishments as Minister of Energy & Water.

Speculations as to what caused this delay abound. Official statements, leaks and media analysis talked of narrow personal interests, and seemed to blame it primarily on the political deadlock but also on Israel (which, as the local perception goes, is always looking to thwart Lebanon’s achievements). The real reasons for the delay can be explained by the convergence of several parameters. Despite the Energy Minister’s determination, and international companies’ commitments (as it was made clear throughout the process and confirmed during meetings with local partners), it was hard for the country to escape the implications of the conflict in Syria. Beyond the influx of over a million refugees, and the militarization of the Eastern Mediterranean, the political deadlock was and still is perceptible at all levels: The country is still run by a caretaker cabinet. PM-designate Tammam Salam has been unable to form a new cabinet; Parliamentary elections, which were supposed to be held on June 2013, were postponed until November 2014; The Constitutional Council which was supposed to look into the challenges submitted by the President of the Republic and FPM MPs against the Parliament’s decision to extend its own mandate was unable to meet due to lack of quorum; The local political class was not even able to look into the appointment of a new Army Chief to replace General Jean Kahwagi who reaches retirement age in September. It was easier to extend his mandate for two more years… There are no apparent solutions, and country risk is rising. Which drives us to regret the time wasted, but, from an investor’s perspective, the delay was probably a relief, in this particular context.

MESP will attempt to present and comment the main arguments that have animated the oil and gas debate in the past couple of weeks:

The conference constituted the peak of a carefully planned campaign that started a week before September 2, the deadline previously set by Bassil to adopt the decrees and proceed with the first licensing round without delays. The caretaker Energy Minister attempted a final forcing to push for the adoption of the decrees. He, and other FPM officials, multiplied media appearances, press leaks and conferences in the days leading up to September 2. Bassil warned that, after this date, he would take his gloves off and address strong messages against all those that are obstructing the process. He was backed by a very active campaign on social media. For Bassil, and the political party he belongs to, obstructing the Ministry’s oil and gas work can only be explained by: narrow personal interests (as FPM leader General Michel Aoun) clearly said when talking to journalists on 26/08, alluding to suspicious links between certain political leaders and the business community; serving Israel’s interests (first suggested by Aoun during the same meeting with journalists on 26/06, and even more loudly declared by Bassil, who spoke of “Israel’s local oil agents” in his press conference) and the interests of Arab gulf monarchies, which, beside the UAE, chose to ignore the tender for political reasons and may find it opportune to obstruct the process until more favorable political forces are in power in Lebanon; a will to sideline Christians, who took over the Ministry of Energy and Water, one of the most complicated, and feared, ministerial portfolios, and turned it into the most sought-after portfolio.

Within his own camp, Bassil received the support of Speaker Nabih Berri, head of the Shiite Amal movement, while the FPM’s main ally, Hezbollah, is too busy dealing with other priorities. Berri, very active in putting the oil and gas sector on track (for multiple reasons: national, political and even private reasons), called for approving the two decrees in a special cabinet meeting, knowing in advance that his call would have a limited effect.

The other camp used roughly the same arguments against Bassil: personal interests and complicity with the business community. For his detractors, Bassil is a provocative figure, whose leadership, within his own camp, is contested. Why, it is whispered, would they allow him to score victories and consolidate his leadership?

As this review shows, Lebanon’s oil and gas sector fell victim of a local power struggle, and of the political deadlock, itself a direct consequence of the Syrian conflict. In such a context, it would have been more than surprising to see the first licensing round proceed with no problems at all. International oil and gas companies were not deluded, and this episode will reinforce their cautious approach. MESP hopes that this will not lead to a prolonged deadlock and would help develop a national consensus in Lebanon that would allow the oil and gas sector to move forward. Tender delays, power struggles, and tense environments are hardly an exception in the business. The potential is there, Kms below the sea bed, and the tender will proceed, with or without delays. What foreign companies and investors need is a reading grid that allows a better comprehension of the political, social and economic environment.

Previous issues of “Lebanon: The Oil & Gas week”:

Lebanon: The Oil & Gas Week, September 02, 2013
Lebanon: The Oil & Gas Week, August 19, 2013
Lebanon: The Oil & Gas Week, August 05, 2013
Lebanon: The Oil & Gas Week, July 08, 2013
Lebanon: The Oil & Gas Week, July 1st, 2013

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