Lebanon: The Oil & Gas Week, July 1st, 2013

Lebanon/Cyprus – LNG Plant:

U.S.-based Noble Energy and Israeli companies Delek Drilling and Avner Oil Exploration (both subsidiaries of the Delek Group) signed a memorandum of understanding (MoU) on 26/06 with the government of Cyprus launching talks for the construction of an LNG plant in Vasilikos, on the Island’s southern coast. The cost of the facility starts at $6 billion but could well reach $10 billion. Noble Energy owns a 70% share of Block 12 in Cyprus’ ZEE, where the Aphrodite gas field was discovered, and Delek Drilling and Avner own the remaining 30%. The three companies are also partners in the Israeli offshore gas fields, Tamar and Leviathan. Other companies are reportedly interested in the project, including Total, ENI, KOGAS, and possibly Woodside, which is trying to acquire a 30% share in Israel’s Leviathan gas field. The deal is the first in a series of agreements required for the implementation of the project; another is expected to be signed on December 31, 2013.

Exports are expected by 2020 according to Cypriot authorities, although this seems to be an optimistic assessment. Nicosia maintains that gas in the Aphrodite field justifies the construction of a single train LNG plant, but is also considering the possibility of expanding it. Cyprus is marketing the project to Israel and Lebanon, and hopes to process gas from these two countries as well. Israel did not decide yet how it plans to export its gas. Gideon Tadmor, Avner’s CEO and chairman of Delek, has indicated on the day the MoU was signed that processing the gas in Cyprus is a possibility that must be explored. But Delek is also exploring other possibilities, including the construction of a pipeline that would transfer gas from the Leviathan field to Turkey. A similar pipeline could be operational within a period of two years, a significant advantage considering that potential exports from Leviathan could begin as early as 2016. Lebanon, several years behind its neighbors in exploring for offshore gas, has not yet studied its export options and potential markets in details, although there seems to be a preference to transport gas by pipeline to neighboring countries, as indicated by caretaker Energy Minister Gebran Bassil on several occasions.

The LNG plant is still at its conception phase, and is shrouded with uncertainties. It is still unclear who will be funding the project, and to which extent Israel will be involved in the funding and construction of the facility. This may raise a few problems for Lebanon, who is in a state of war with Israel, and whose legislation forbids dealing with Israel and Israeli companies.

Lebanon – Local politics:

Political deadlock is spreading and touching every aspect of Lebanese politics. The country is still run by a caretaker government since PM Najib Mikati resigned on 22/03; PM-designate Tammam Salam’s efforts to form a new government have been unsuccessful so far; 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; Next: Lebanese Army Chief Jean Kahwagi reaches retirement age in September, but once again, political deadlock will prevent the appointment of a new Commander. Parliament will convene this week to discuss and approve a law extending military commanders’ retirement age. FPM MPs have already announced their intention to challenge the extension of Kahwagi’s term. FPM opponents are accusing the party and particularly its leader Michel Aoun of causing a stalemate in order to impose his two sons-in-law: Gebran Bassil, as Minister of Energy and Water, and Shamel Roukoz, as army Commander.

In the meantime, caretaker Energy Minister is pursuing his work, unlike many of his colleagues in the government: On 25/06, the Ministry announced that four companies have applied for a tender to build a 50-100 MW wind farm. Offers will be evaluated and the winner will be announced once the procedure is completed. On 30/06, Bassil laid the cornerstone for the construction of a new water dam in Balaa.

Lebanon – Turkey:

Lebanon’s experience with Turkish companies recently has not been rewarding, with possible implications for Turkish companies seeking to obtain exploration rights offshore Lebanon, and on Turkey’s image in general. Under a $360 million three-year contract signed by the Ministry of Energy and Karadeniz Holding, the Turkish company was supposed to provide two electricity-generating ships. The first ship arrived several months late and started producing electricity on 25/03, before cutting down production on 25/04 for reasons that have not been clarified yet. The second electricity barge, scheduled to arrive on 12/06, did not arrive yet, and is not expected before at least three weeks. Caretaker Energy Minister Gebran Bassil indicated that a $82,000 daily fine will be imposed on the company until the electricity barge shows up and starts producing electricity.

Previous reports:

Lebanon: The Oil & Gas Week, June 24, 2013
Lebanon: The Oil & Gas Week, June 17, 2013
Lebanon: The Oil & Gas Week, June 10, 2013
Lebanon: The Oil & Gas Week, June 03, 2013
Lebanon: The Oil & Gas Week, May 27, 2013

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