Lebanon: The Oil & Gas Week, August 19, 2013

Lebanon – Turkey:

Two Turkish Airlines pilots were kidnapped on 09/08 by an unknown group called Zuwwar al-Imam Rida, near the Beirut international airport. The incident is in retaliation for the kidnapping of Lebanese pilgrims in May 2012 by Syrian rebels, believed by many in Lebanon to be in close contact with Turkish authorities. It is the latest in a series of hostile actions targeting Turkish interests and at times citizens, highlighting a prevalent hostility towards Turkey, particularly among the Shiite community in Lebanon. However, the group that claimed responsibility for the pilots’ kidnapping is unrelated to the families of the Lebanese pilgrims who have been staging protests and threatening Turkish interests for over a year, including sit-ins in front of the Ministry of Energy & Water calling on the minister to exclude Turkish oil and gas companies from Lebanon’s first licensing round. The fact that a new group has emerged suggests that others may seek to do the same, by surfing on the families’ tragedy while pursuing different agendas. Indeed the kidnapping business is thriving in Lebanon, taking advantage of the State’s inability to ensure security.

Turkey has reacted by advising its citizens in Lebanon to leave the country. On 11/08, Ankara announced its intention to withdraw its troops from the United Nations Interim Forces in Lebanon (UNIFIL). The decision is not related to the kidnapping of the Turkish pilots and was leaked to the press weeks earlier as we have mentioned in our previous report (see “Lebanon – Turkey” in Lebanon: The Oil & Gas Week, August 05, 2013). Both incidents however are indicative of the tense relations between Lebanon and Turkey in recent months.

If until recently we have anticipated possible implications for Turkish petroleum companies involved in the first licensing round who may not constitute the preferred choice for certain political factions, the kidnapping of the Turkish Airlines pilots might cool off the Turks’ initial enthusiasm for Lebanon’s oil and gas and may lead them to reconsider their participation in the bidding process. The Lebanese government, regardless of its caretaker status, is requested to take concrete measures to reassure the Turks, and foreign investors in general. Turkey is not only an important trading partner; it has in the past decade doubled its effort to penetrate the Lebanese market and Turkish companies were able to seize contracts in strategic sectors (ex. Electricity). It is in the interest of both countries to contain the current deterioration in their relations.

East Mediterranean – Energy cooperation:

The Energy Ministers of Cyprus, Giorgos Lakkotrypis, Greece, Yiannis Maniatis, and Israel, Silvan Shalom, signed a memorandum of understanding on 08/08 to pursue and strengthen energy cooperation and ensure energy security, including the protection of vital infrastructure. Although a memorandum of understanding is more of an expression of intent rather than a full-fledged agreement, the three countries have in the past few years, and particularly since the deterioration of Israeli-Turkish relations, deepened their cooperation in the fields of energy, water and defense. The three ministers expressed support for the EuroAsia Interconnector, a project that aims to link the three countries with an underwater electricity cable with a 2,000 MW capacity and could potentially allow the export of electricity to EU countries. The deal does not shed further light on gas exports plans. Two days before the signature, on 06/08, the press widely reported on Delek Group’s exports plans on the margin of its planned acquisition of 100% of the shares of subsidiary Delek Energy Systems, of which it currently owns 87%. A spokesman for Delek Group said the group was already in advanced talks to export Israeli gas via a pipeline to Turkey and that it is also studying options to export gas to Jordan, Egypt and the Palestinian Authority.

Lebanon for its part seems to be left behind, more so because of a lack of vision of its leadership than anything else. Beirut has historically enjoyed very close relations with Nicosia, and Cyprus has dispatched a number of high-ranking officials (including the President of the Republic, Minister of energy, Parliament Speaker and the director of the Energy Service, and the Minister of Defense) in the past year alone, seeking to strengthen energy cooperation between the two countries. Cyprus’ enthusiasm was not met with similar interest in Lebanon, in part because of a perceived Cypriot role in the maritime border dispute between Lebanon and Israel. Lebanon is also jeopardizing its relations with Turkey, also because of a perceived Turkish role in the kidnapping of Lebanese Shiite pilgrims in Syria in May 2012 (see “Lebanon – Turkey” above). Both examples demonstrate an alarmingly deficient diplomacy that threatens to jeopardize Lebanon’s relations with its close neighbors.

Lebanon is several years behind its neighbors and has not made any gas discovery. In the rare event when speaking about gas exports, Lebanese officials have shown a preference to exporting gas to neighboring countries via pipelines. Lebanese officials seem eager to declare that Lebanon has become a resource-rich country, but show little enthusiasm to strengthen energy cooperation with neighboring countries and are in no rush to discuss export options.

Lebanon – Country risk:

Hardly a day passes without a major security incident in Lebanon, both in and outside the capital Beirut. Kidnappings, targeted and random explosions, the absence of a functional government etc. make it harder to do business. Delays in approving the two decrees that are essential for proceeding with the first licensing round are frustrating not only caretaker Energy Minister Gebran Bassil but also a number of companies that are interested in the bidding process. Commenting on our previous report (see “Lebanon – First licensing round” in Lebanon: The Oil & Gas Week, August 05, 2013) in which we warned that pushing the cabinet meeting until mid-September does not respect previously set deadlines and may lead to further delays, Bassil told MESP that he considers the date (mid-September) as “too late and not acceptable.”

Middle East Strategic Perspectives – Lebanon International Oil & Gas Summit:

Middle East Strategic Perspectives has agreed to a partnership with Global Events Partners for the second edition of Lebanon International Oil & Gas Summit (LIOG) to be organized in Beirut on 4-5 December 2013. LIOG 2013 is held under the patronage of the Ministry of Energy and Water, in collaboration with Lebanon’s Petroleum Administration and endorsed by the International Gas Union (IGU). The event is sponsored by Schlumberger, Baker Hughes and Danagas.

The programme includes 5 main themes to provide an in depth coverage of the key topics related to the development of Lebanon’s oil and gas potential. This year’s edition will have a strategic emphasis on the oil and gas service industry and supply chain, particularly highlighting the investment opportunities in this promising industry for both local and international investors:

• Theme 1 will focus on infrastructure and the supply chain in the industry in general.

• Theme 2 will look at the banking and insurance industry and Lebanon’s ability and willingness to support the oil and gas sector in general and service companies in particular.

• Theme 3 will run around the legal issues in the service industry particularly in terms of contracts and dispute resolution.

• Theme 4 will provide a full update on the regional and market developments since last year.

• Theme 5 will cover the local content and sourcing of skills.

Participants are expected to include, in addition to the bidding exploration and production (E&P) companies, a wide range of service providers; drilling and well servicing contractors, pipeline services and maintenance, engineering, procurement and construction (EPC) contractors, banks and insurers, specialized law firms, specialized IT and telecommunications companies, EHS consultants and suppliers; suppliers of work accessories; recruitment agencies, and more.

Middle East Strategic Perspectives – Lebanon: The Oil & Gas Week:

Our next report will be published on September 02, 2013.

Previous reports:

Lebanon: The Oil & Gas Week, August 05, 2013
Lebanon: The Oil & Gas Week, July 08, 2013
Lebanon: The Oil & Gas Week, July 1st, 2013
Lebanon: The Oil & Gas Week, June 24, 2013
Lebanon: The Oil & Gas Week, June 17, 2013

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