[Oil & Gas Updates]: Weekly Roundup, April 15, 2013

Lebanon – Local politics:

The near universal endorsement of Tammam Salam by Lebanese MPs and political factions may have led some to consider that the formation of the next cabinet would be an easy task for the newly appointed Prime Minister-designate. Salam got a first-hand glimpse this week of the complexities of Lebanese politics and of his own task of forming a new cabinet, during the two-day parliamentary consultations held on 9-10/04. Although most political factions announced their intentions to “facilitate Salam’s task”, the reality is all of them have specific and often conflicting demands and conditions, and they are not ready for concessions so early in the process.

It is rumored, in some local circles, that the resignation of Prime Minister Najib Mikati was, in part, due to Saudi pressure exerted on certain factions in the government to bring about a change in order to appoint a more favorable figure at the ministry. It is therefore not surprising that the distribution of key ministerial portfolios remains Salam’s biggest challenge, with many eyeing the Ministry of Energy and Water in specific. The type of cabinet is widely debated, but this too conceals a power struggle to control the Ministry of Energy. In fact, those who are calling for the formation of a political cabinet are doing so with the intention of retaining the ministry, and those who are advocating for a cabinet of technocrats, or a cabinet that includes non-leading party figures, excluding members wishing to run for parliamentary elections, are doing to so with the intention of sidelining Gebran Bassil (a senior member of the Free Patriotic Movement, FPM, he is neither a technocrat, nor a marginal within his party, and has never hid his intention to participate in the parliamentary elections, although, if pushed to choose between the two, he is likely to sacrifice his parliamentary ambitions in order to retain the ministry and continue the work he has started).

Another seemingly well-intentioned debate concerns the rotation of ministerial portfolios, between sects and political parties. For example, in the past few years, the Ministry of Foreign Affairs was almost always headed by a Shiite Muslim close to Speaker Nabih Berri’s Amal Movement. Similarly, since the 1990s, the Ministry of Finance, considered as a super-ministry due to its powers and financial hold on other ministries, was almost always held by a Sunni Muslim, usually belonging to the Future Movement (FM), when the party is in power. The FM has always resisted calls for rotation at the ministry which it considered as a key instrument to implement its financial and economic policies. At first, Future Bloc leader (at the parliament) Fouad Siniora’s declaration that the rotation of ministerial portfolios, starting with the Ministry of Finance, is a democratic must, appears to be a daring move, even revolutionary from an FM perspective, but again it conceals the real motivation behind this statement: removing a foe from the Ministry of Energy and attempting to control it. The move would seem even less daring if we take into consideration that the upcoming cabinet’s major objective is to hold parliamentary elections. It is therefore expected to be short-lived and is unlikely to pass a new budget or revise the country’s financial policies.

In the meantime, Bassil is pursuing his work at the ministry, at a pace that is stunning most observers: on 08/04, he laid the cornerstone for the construction of a new power plant in Zouk; on 10/04 he launched a tender to build an offshore LNG import terminal; on 11/04, he launched the Beirut River Solar Snake project, the first solar farm in Lebanon, to generate, as a start, 1 MW of electrical power; on 12/04, he signed a $470m contract with Greek-Cypriot firm J&P Avax, winner of the bid to build a new 538 MW power plant in Deir Amar; on 14/04, he laid the cornerstone to build a water dam in Bekaata. But the FPM is also stepping up its counter-attack. The Tayyar news website, affiliated to the FPM, has quoted an unnamed FPM MP saying that the party would be ready to give up the ministry immediately, “in return for the Ministry of Defense, the Ministry of Interior, the Ministry of Finance, the Ministry of Foreign Affairs and the Ministry of Health… and maybe more.” An online media campaign is targeting Bahij Abou Hamze, Walid Joumblat’s candidate to head the Ministry of Energy [see “Lebanon – Internal politics” in our April 8, 2013 roundup; and “Lebanon – Internal politics” in our April 1st, 2013 roundup], accusing him of corruption in his management of the fuel importing business. According to al-Akhbar, if Joumblat is able to impose Abou Hamze at the ministry, it would be the Druze leader’s revenge against Bassil, whom he accuses of excluding Abu Hamze’s company from the pre-qualification round preceding the country’s first licensing round for offshore oil and gas exploration. The struggle over the Ministry of Energy and Water is only at its beginning and threatens to delay the formation of a new cabinet.

Lebanon – Diplomatic missions:

Embassies and consulates are a vital element in the promotion of a country’s economic and commercial attractiveness. Lebanon’s modest-sized economy and industry may explain why Lebanon never really developed what some refer to as “economic diplomacy”. Lebanese representations abroad rarely engage in promoting bilateral trade and investments. Their programs include, at best, holding seasonal expositions displaying some of the country’s export products. There is no vision, nor a pre-defined strategy of how to promote Lebanon as an attractive destination for foreign investments. Perhaps with the potentially large deposits of oil and gas off the Lebanese coast would provide an opportunity for officials to reevaluate their policies and the responsibilities of their diplomatic representations abroad. The Ministry of Energy and Water and the Petroleum Administration are doing a decent job promoting the country abroad. But their resources are limited. It is impossible, for example, to engage with the business community and local authorities in different countries around the world and to attend every oil and gas conference. A comprehensive job cannot be done unless it is backed by the economic or trade sections in Lebanese embassies and consulates.

Lebanon – Diplomatic activity:

The Norwegian embassy is circulating an email extending an invitation to apply to PETRAD’s annual 8-week training program in “Petroleum policy and resource management” or “Petroleum development and operations” in Stavanger, Norway, from September 16 to November 7, 2013. PETRAD is a non-profit Norwegian government foundation established in 1989 to facilitate knowledge and experience transfer about petroleum management, administration and technology between managers and experts in governments and national oil companies. Over the past few years, several participants have been selected from Lebanon. Norwegian assistance has been instrumental in developing local capacities and providing technical support, very early in the process, particularly within the framework of the Oil for Development program, which dates back to 2007. Among the 6-member board that make up Lebanon’s Petroleum Administration, two, Gaby Daaboul and Wissam al-Zahabi, have been trained in Norway, as part of an 8-week program covering petroleum policy and resource management.

Also among the notable diplomatic activity this week are two visits by Austria’s Minister of Foreign Affairs, Michael Spindelegger and Italy’s Minister of International Cooperation, Andrea Riccardi [see “Diplomatic activity” in our April 1st, 2013 roundup]. Both focused on the situation of Syrian refugees, but discussions also touched on bilateral economic ties, and investments in the country, including in the energy sector.

Cyprus – Israel:

Following his brief visit to Lebanon, Cyprus minister of Energy, Commerce, Industry and Tourism Giorgos Lakkotrypis accompanied Foreign Minister Ioannis Kasoulides on an official visit to Israel on 08/04, to discuss energy cooperation and to prepare President Nicos Anastasiades’s visit in May. The ministers met with Israel’s President Shimon Peres, Prime Minister Benjamin Netanyahu, Energy Minister Sylvan Shalom, Tourism Minister Uzi Landau and Deputy Foreign Minister Zeev Elkin. It is hard not to discern a certain anxiety in Cyprus over the resumption of contacts between Israel and Turkey, which could lead to a resumption of bilateral ties and to possible cooperation in the field of energy. The excellent Israeli-Cypriot relations that developed in the past few years were largely motivated, at first, by the deterioration of ties between Turkey and Israel. Plans to build an Israeli-Turkish pipeline to export Israeli gas are met with unease in Cyprus, despite Nicosia’s repeated assurances that such a scenario would not affect its own plans. Ever since the US-brokered Israeli-Turkish rapprochement, Cypriot officials have been multiplying declarations that plans to build an LNG facility will be pursued, with or without Israeli investments or gas supplies. Cypriot gas deposits, they claimed, are enough to justify the construction of the plant. But these deposits are not proven reserves, and there’s no denying that, cash-strapped Cyprus would have preferred to secure an Israeli involvement in the construction of this multi-billion dollar facility. The economic viability of the project is questioned if it is to treat Cypriot gas only. That may explain Lakkotrypis’ visit to Beirut last week [see “Lebanon – Cyprus” in our April 8, 2013 roundup].

Israel, for its part, has yet to decide on its export policy. The Cypriot delegation’s visit to Israel coincided with the visit of Charles Davidson, CEO of Noble Energy, which has made large gas discoveries off the Israeli coast and in Cyprus’ EEZ, to lobby Israeli authorities to allow natural gas exports. In 2012, a committee headed by Ministry of Energy and Water Resources director general Shaul Tzemach recommended allowing the export of roughly half of the Israeli gas reserves. The recommendations have not yet been approved by the government, but the restrictions on exports (exact percentages have yet to be fixed) have strained the relations between the Israeli government and energy companies, further antagonized by a potential review of the natural resources tax regime [in 2011, Israel had already decided to increase taxes retroactively on oil and gas investments], although the Israeli government has already indicated that the review will not affect gas reserves. Delays in approving an export strategy has prevented the signature of an agreement with Australia’s Woodside Petroleum which is eyeing a 30% stake in the Leviathan field. Davidson warned Israel that Noble Energy, which has to decide on the development of Leviathan this year, would not proceed its work unless Israel lays down its export policy, and clarifies how much gas his company would be allowed to sell abroad.

Eastern Mediterranean – Gas: a source of stability?

The Middle East is accustomed to theories, sometimes bordering on conspiracies, explaining the reigning political instability and hardships through the prism of energy geopolitics. Recently, however, a new trend seems to be making its way, and that is to explain stability and encourage peace overtures through that same prism. In an article published on 09/04, Lebanese daily Assafir referred to a report by an anonymous western diplomat that reveals a new international approach to conflicts in the Levant, directed to appeasing rather than igniting the region, starting with the settlement of the Syrian conflict, as a prelude to a resumption of peace negotiations between Syria and Israel and between the Palestinian Authority and Israel. This new approach, based on a Russian-American understanding, is largely motivated by the discovery of large oil and gas reserves in the Levant, which both Russia and the U.S. regard as belonging to world markets, and not just for local consumption, and should not be threatened by conflicts and political instability. Similarly, al-Akhbar, another Lebanese daily, referred, in its 11/04 edition, to an “international plot”, currently being concocted, to keep Lebanon stable, due to its significant gas reserves.

Elsewhere in the region, an article published in the Saudi Gazette on 11/04 lists the political, security and economic challenges that the exploitation of Eastern Mediterranean gas is likely to face. The author claims that these discoveries may, in addition to their economic benefits, have a positive political impact as well. He advocates for the establishment of an international company, owned by governments, not individuals or private firms, and employing citizens hailing from countries in the region, to extract, liquefy and export the natural gas. The author concludes by saying that if there is good intention and a strong political will, such contacts will pave the way for peace in the region. The significance of the article is that it was published in a Saudi newspaper. Considering how media operates in Saudi Arabia, particularly political media, and its close links with the ruling family and establishment, the publication of such an article is more of an indication, or a reflection, of a certain trend that the Saudi political establishment is considering to market than a mere coincidence. The same article was published the next day on Al-Arabiya’s website, the English online portal of the Kingdom’s leading regional news channel. On the same wavelength, Michael Lotem, a senior Israeli diplomat attending the 12th Turkish International Oil & Gas Conference, held in Ankara on 10-11/04, argued for the creation of “another political environment in the region” and for putting gas in the service of diplomacy.

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