[Oil & Gas Updates]: Weekly Roundup 26/11

Lebanon – Iran:

Iran granted $40 million to Lebanon for the construction of a water dam in the village of Balaa in Batroun to generate power. The deal was signed on 16/11 in Beirut between the Iranian Energy Minister Majid Namjoo and his Lebanese counterpart Gebran Bassil. All the surrounding villages will benefit from this project which would boost Bassil’s record in the region ahead of the parliamentary elections in 2013 (Bassil twice failed to be elected in his home region, in 2005 and 2009). This partly explains the opposition to the project from rival March 14 forces in the region, the other reason being a traditional suspicion to any type of Iranian involvement in a deeply Christian region. Namjoo, who also met President Michel Slaiman and Prime Minister Najib Mikati during his stay in Beirut, confirmed his country’s willingness to assist Lebanon in its oil and gas sector. In addition to local opposition to the water dam project, there are suspicions, some of which were voiced on the occasion of Prime Minister Najib Mikati and Energy Minister Gebran Bassil’s visit to France by the Representative Council of French Jewish Institutions, that the deal might be in violation of international sanctions against Iran. Iranian involvement in such a strategic sector as the petroleum sector would be expected to raise a stronger opposition. Tehran have repeatedly declared its intention to help Lebanon in the past, particularly by equipping its armed forces. Beirut, for local, regional and international reasons, was never able to respond favorably to such offers, which might indicate that the Iranian offer to help Lebanon’s energy sector is likely to be met with a similar response.

Lebanon – France:

Lebanese Prime Minister Najib Mikati was on a three-day official visit to France this week (19-21/11) where he held talks with his counterpart Jean-Marc Ayrault and President François Hollande. Beside the local and regional political crisis, talks focused on bilateral cooperation, including in the field of oil and gas, during which PM Mikati called on France to be actively involved in the sector [Link in Arabic]. It is worth to note that the Lebanese delegation did not include key ministers such as Defense Minister Fayez Ghosn and Energy Minister Gebran Bassil, although defense and energy issues were at the heart of discussions. It is not clear if PM Mikati held talks with Total’s Chief Executive, Christophe de Margerie, during his stay. Mikati and Margerie had already met during the Prime Minister’s previous official visit to France in February 2012, which seems to indicate that the Lebanese PM, whose own M1 Energy group is itself interested in gas resources, prefers to hold personal rather than state/official contacts. Interestingly, Bassil, who did not accompany the PM, also visited France this week (22-25/11), during which he held a series of meetings with the Lebanese community. According to the schedule he published on his official twitter account it doesn’t seem any meeting with French officials was programmed.

Lebanon – Economic Prospects:

The poor state of the economy is increasingly pushing political and financial actors to anticipate the prospect of gas extraction as a possible solution to Lebanon’s economic woes, even before the country’s hydrocarbon potential is confirmed, which will only be verified once exploratory drilling takes place. A delegation from the International Monetary Fund headed by Kristina Kostial visited President Michel Slaiman on 19/11 to discuss the country’s economic developments and policies. Kostial insisted on the need to reform the electricity and telecommunications sectors to generate much-needed revenues. The President presented his views on the subject and insisted on the need to assess the country’s economic situation as a first step and to come up with adequate solutions and decisions based on the results of the assessment. Slaiman drew attention to the resilience of the Lebanese economy which relies on strong fundamentals that have allowed the country to face frequent crisis, the most important of which now is the prospect of oil and gas exploration [Link in Arabic] in Lebanon’s exclusive economic zone.

Bank Audi issued its quarterly Economic Report in mid-November, which indicated that Lebanon’s economy performed poorly in the first three quarters of 2012, despite a 2% growth expected this year, in-line with IMF projections. It also noted that, in the absence of structural reforms or significant economic growth, the prospect of gas extraction, if it ever materializes, would be able of putting an end to the country’s public finances.

Lebanon – Licensing Process:

According to sources quoted by MEES, which concur with our own information [Link in French], French giant Total is interested in the upcoming licensing round for hydrocarbon exploration in Lebanese waters. Total, as part of a consortium also including Novatec and Gazprombank, was selected to conduct exploration activities in Block 9, in the latest licensing round organized by Cyprus, the results of which were announced on 31/10. The selection sparked a controversy given that the consortium’s bid was the 2nd least competitive out of six bids for Block 9. Nicosia had made it clear from the start that apart from the technical and economic aspects, national security would be among its main concerns when choosing potential candidates. According to a senior diplomat quoted by MEES, the Cypriots “did not give Block 9 to Total or Gazprombank, they gave it to France and Russia, two veto-holding members of the UN Security Council.” The Cypriot choice highlights the advantages of diversification for a small country. Lebanon is expected to follow suit, its Offshore Petroleum Resources law provides that Exploration and Production agreements are only awarded to groups of at least three contractors.

Lebanon – Licensing Process:

According to an article published by The Daily Star on 21/11, The Norwegian State oil company, Statoil, is among the companies interested in applying for an exploration license offshore Lebanon. The Daily Star journalist refers to a couple of articles published [both links in Norwegian] by Henning Carr Ekroll in the Norwegian daily Aftenposten confirming that Statoil has met with Lebanese officials and is interested in applying for drilling rights. The Daily Star expects that the influx of companies will benefit the Lebanese economy even before the gas is extracted, but, the newspaper warns, until exploratory drilling begins, there’s no guarantee Lebanon will extract its resources. Cooperation between Norway and Lebanon in the field of oil and gas dates back to 2007 with the launching of the ‘Oil for Development’ program, the purpose of which was to support Lebanon in the management of its potential petroleum resources, by training personnel and assisting in the drafting of related legislation. The Norwegians seem to be interested in the region’s resources as a whole. According to an article published by Globes on 21/09, Subsea 7, a major offshore engineering company and Seadrill, which owns a large fleet of drill ships are both eyeing the Leviathan field which Lebanon suspects it extends to the Lebanese side of the borders.

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