Lebanon: The Oil & Gas Week, May 20, 2013

Lebanon – Turkey:

The relatives of the Lebanese pilgrims detained by rebels in Syria expanded the scope of their protests and headed to the Ministry of Energy and Water on 16/05 [see “Lebanon – Turkey” in our April 29, 2013 roundup]. They delivered a letter to caretaker Energy Minister Gebran Bassil urging him to exclude Turkish petroleum companies from offshore exploration tenders. Sheikh Abbas Zgheib, appointed by the Higher Islamic Shiite Council to head the follow-up committee in charge of the abductees’ case, urged Bassil to respond favorably to these demands, providing the pilgrims’ relatives the blessings of the highest Shiite religious authority. It can now be said that the demands and actions of the pilgrims’ relatives enjoy further legitimacy, with the backing of their religious (and, to a large extent, political) authorities. This may have implications on the chances of Turkish companies that choose to participate in the first licensing round. Unlike TPAO whose margin of maneuver may be limited – being Turkey’s national oil and gas company – Genel Energy has the luxury of choosing which of its Turkish or British identity to put forward, knowing that the UK’s insistence of listing Hezbollah as a terrorist group also risks alienating the same community (with its religious and political leaders) that is currently protesting against Turkey.

Israel – Karish 1:

Noble Energy and Delek Group have announced on 15/05 that significant signs of natural gas have been found in Karish 1, in the Alon C block. Alon C is entirely located in Israeli waters but is very close to the Lebanese borders [see picture below. Click to enlarge].

Map showing the location of Block Alon C.

The reservoir may contain up to 2 tcf of natural gas, about a quarter of the amount of gas in Tamar. If confirmed, the news is significant for Israel. The more gas it finds in its waters, the more likely it is to opt for an export policy. This will encourage Israel to speed up the process. On the other hand, news of drilling and exploiting resources so close to the borders will increase Lebanese concerns of “Israel stealing Lebanon’s resources.” Although Energy Minister Gebran Bassil has indicated, on more than one occasion recently, that Israel is, up until now, only operating within its borders, such fears remain common in Lebanon, supported by previous experiences with the Jewish State diverting water resources along the borders inland. TV channels often host energy experts warning of Israel’s advanced technological skills and its ability to exploit and drain gas fields on the other side of the borders, which help perpetuate such fears among the Lebanese population. Israeli drilling in Alon C might cause certain nervousness but it will be confined to rhetoric, feeding propaganda on both sides of the border, and is unlikely to cause tension on the ground.

Eastern Mediterranean – Security of offshore resources:

The Lebanese Army organized a conference on 15/05 to launch the five-year development plan for the Armed Forces. The $1.6 billion plan, approved by the government in September 2012, identifies the army’s needs in terms of equipments, arms and operations. The plan includes boosting the Navy’s capabilities, to allow it to monitor and control Lebanese waters and to protect the country’s maritime borders. The security of future offshore energy installations provides further incentives, for Lebanese authorities and partner states, to develop the Navy’s capabilities. While the responsibility of securing Lebanese waters falls solely on the Lebanese authorities, in the absence of advanced equipments, security considerations should also encourage cooperation between Lebanon and other countries, particularly those keen on controlling the security situation in the region, and those with significant economic interests. This partly explains frequent visits by defense officials to Beirut recently, including Italy’s defense minister Mario Mauro, who arrived to Beirut on 16/05, followed by U.S. Central Command commander Gen. Lloyd J. Austin III on 17/05.

Security of offshore installations is also a major concern for Israeli authorities, despite having the most advanced Navy in the region. Israel Aerospace Industries presented a wide range of advanced maritime solutions at the Asia International Maritime Defense Exhibition (IMDEX) in Singapore on 14-16/05, including an advanced multiple-intelligence concept for Exclusive Economic Zone (EEZ) protection that relies on coastal, aerial, space and naval-based sensors combined with an intelligence infrastructure layer. It also displayed its Skimmer-integrated naval helicopter package and a multi-mission fast patrol boat for Homeland Security and EEZ security missions. Despite budget cuts, the Israeli army, and its naval arm, still enjoys large funding. However, this does not guarantee full security. Israel is deeply concerned about reports that Russia has provided the Syrian army with advanced anti-ship cruise missiles with advanced radar technology, and is particularly worried such advanced systems may end up in Hezbollah’s hands. In 2006, the Lebanese resistance surprised the Israeli army when it launched a sophisticated radar-guided missile at an Israeli warship. Israel has maintained that Hezbollah has further developed its capacities since the 2006 war.

Lebanon – Economic prospects:

The repercussions of the Syrian conflict are not limited to the political and security situation. The Lebanese economy is also reeling from the effect of the conflict, which has affected growth and will certainly increase fiscal deficits. Local political instability and failure to form a new cabinet, six weeks after the resignation of Prime Minister Najib Mikati, have complicated things further. On 14/05, Moody’s announced that it changed the outlook for government bonds from stable to negative. Although it maintained Lebanon’s B1 rating, the report is a warning that a future downgrade is possible, “in the event of a further deterioration of the country’s main debt metrics or an intensification of domestic political turmoil.” Lebanon is rated B with a negative outlook by Standard & Poor’s and B with a stable outlook by Fitch Ratings. On 15/05, Moody’s also changed its outlook from stable to negative for the deposits ratings of three major Lebanese banks: Bank Audi, BLOM Bank and Byblos Bank.

Eastern Mediterranean – Naval activity:

Russia, which has had a continuous presence in the Mediterranean for over six months, announced that ships from the Black Sea Fleet will form the foundation of a new task force that will be permanently deployed in the Mediterranean Sea. The discovery of vast amounts of gas in the Eastern Mediterranean and the political transformation the region has been going through in the past couple of years has boosted its strategic clout. For Federation Council Speaker Valentina Matviyenko, “It’s no secret that the Mediterranean region is the world’s political kitchen in current history. We need our own chef in this kitchen.” Ships from other Russian fleets will also be joining. On 16/05, a destroyer and two amphibious warfare ships belonging to the Pacific fleet entered the Mediterranean through the Suez canal. Russia, which maintains a naval base in the Syrian city of Tartous, enjoys warm relations with several countries in the region, and can use ports in Cyprus, Greece and Montenegro. Increased military activity at the Port of Beirut is an indicator of the growing importance of the region. Largely motivated by the Syrian crisis, and the permanent state of tension between Lebanon and Israel, it probably also conceals the intention of certain countries to reposition/reaffirm their presence in light of recent gas discoveries in the region.

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