[Oil & Gas Updates]: Weekly Roundup, April 29, 2013

Lebanon – Diplomatic activity:

Beirut received this week the Spanish minister of Foreign Affairs and Cooperation José Manuel García-Margallo (24-25/04), Russian Deputy Foreign Minister Mikhail Bogdanov (25-28/04) and Greek Deputy Foreign Minister Kostas Tsiaras (22-23/04). The Syrian conflict is understandably the primary focus of these visits, and its repercussions on Lebanon a major cause of concern. But the energy dimension should not be missed. Both García-Margallo and Bogdanov have brought up the issue of strengthening economic and commercial ties, particularly through investments in Lebanon’s oil and gas sector. Spain’s Repsol and Russia’s Lukoil, Rosneft and Novatec/GPB Global resources are among the 46 companies eligible to bid for an exploration license in the upcoming licensing round. Both countries are actively seeking, for reasons of their own, to deepen their economic and political presence in the Levant. At the political level, there is a certain convergence of views regarding the Syrian crisis. Unlike its European partners, particularly the French and the British, much more outspoken in their support of Syrian rebels, Madrid, like Moscow, seems to be in favor of a negotiated political settlement. Whether Spain is announcing a potential reevaluation, by the EU, of its policies or trying to demarcate itself remains to be seen. In any case, Madrid is also looking to challenge its European partners at the economic level, by seeking a front role in a region in which London and Paris are used to be the main players. Its reputation as a committed (Spain is one of the top contributing countries to the UNIFIL) but fairly neutral European power might earn it (and Repsol) a few extra points among some in the Lebanese political class.

Lebanon – National institutions:

Future Movement MP and chairman of the Parliament’s Public Works, Transport, Energy and Water Committee, Mohammad Qabbani, called for the establishment of a national oil company and a sovereign wealth fund, in a press conference he held on 24/04. The Offshore Petroleum Resources Law provides for the formation of a national oil company “after promising commercial opportunities have been verified” (article 6). Calls for establishing one years before any verification is possible is at best questionable and raises fears that the company would face the same crippling challenges many other public companies have long suffered from: patronage and mass-staffing, at the expense of productivity.

In addition, Qabbani announced that, together with a group of MPs, he submitted a law proposal to establish a Ministry of Petroleum. The question of a reorganization of the Ministry of Energy and Water was expected, as we have mentioned in a previous report [See “Lebanon – Ministry of energy” in our January 21, 2013 roundup]. Splitting it does not necessarily guarantee a better organization or management but the topic is well worth a debate. At the time, we recommended keeping an eye on Cyprus, which did not have a ministry of energy, but only an Energy Service within the Ministry of Commerce, Industry and Tourism. The latter has since been transformed into a Ministry of Energy, Commerce, Industry and Tourism.

Lebanon – Turkey:

The relatives of nine Lebanese pilgrims held hostages in Syria are stepping up their pressure against Turkey and Turkish interests in Lebanon. The Shiite pilgrims were kidnapped by Syrian rebels almost a year ago, on their way from Iran, shortly after crossing the Turkish-Syrian borders. Their families have repeatedly blamed Turkish authorities for their abduction and for failing to ensure their release. They are holding sit-ins in front of the Turkish embassy, and the Turkish cultural center. They initiated a campaign to boycott Turkish products and vowed to disrupt the work of Turkish companies or institutions operating in Lebanon. On 25/04, they urged the government, and caretaker Energy Minister Gebran Bassil specifically, to exclude any Turkish company from offshore exploration tenders, citing TPAO in particular, but eyeing any other company with strong Turkish links, such as Genel Energy.

This was not an easy week for Turkey in Lebanon. Beside the repeated sit-ins and media appearances of the relatives of the pilgrims, thousands of Lebanese-Armenians marched in the streets of Beirut on 24/04 to commemorate the 98th anniversary of the genocide, calling on Turkey to recognize the genocide and to compensate victims. Non-Armenian Lebanese also joined the march, including the families of the nine Shiite pilgrims. And to conclude this troubled week, the Turkish firm operating the power ship Fatmagül Sultan hired by Lebanon to generate extra power has considerably cut its electricity production since 25/04, for reasons that have yet to be disclosed.

Eastern Mediterranean – Security of offshore resources:

The Israeli army intercepted and destroyed a drone on 25/04, off the coast of the northern city of Haifa [see MESP’s analysis “FLASH: Liban – Israël: Drones vs Drones” published on 25/04]. It claimed the drone entered the Israeli airspace from the Lebanese side of the borders and some Israeli officials immediately accused Hezbollah. But the Lebanese resistance group, which sent a first drone to Israel in October 2012, was quick to deny the claims, although it is virtually the only group in Lebanon capable of launching and operating drones. The drone reportedly flew over Israeli offshore gas installations. The incident is yet another warning of the fragile security situation on the borders, that hangs over potential oil and gas investments like a sword of Damocles, and raises the question of the security of offshore resources and installations.

Lebanon – Oil & Gas 2013 Summit:

The Lebanon Oil & Gas 2013 Summit was held on 22-23/04 in Beirut, under the auspices of chairman of the Parliament’s Public Works, Transport, Energy and Water Committee, Mohammad Qabbani, with the support of the Embassy of Russia and the Embassy of Chile in Lebanon, as well as the UK Trade & Investment. Holding the event on time, only a few days after the organizers of Lebanon Oil, Gas & Energy Conference (LOGEC 2013) chose to postpone their own conference, “due to the unstable security and political situation,” shows a more profound commitment. The conference was attended by UK ambassador Tom Fletcher and Norwegian ambassador Svein Aass, highlighting once again the leading role of these two embassies in accompanying the emergence of the Lebanese oil and gas sector.

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