New gas discoveries in the Eastern Mediterranean come at a time when global gas demand is increasing. Demand for natural gas is expected to grow by 1.6% a year and overtake coal as the second most important fuel in the world after oil. Interesting prospects ahead for Lebanon, which claims a significant portion of the Levant basin’s resources lays under the seabed in its exclusive economic zone (EEZ). Three-dimensional Seismic studies conducted over 70% of the country’s EEZ show prospectiveness is high. But, although the country has achieved significant work over the past few years, by laying down the legal and institutional framework necessary to invite companies to bid for exploration rights, it still lags behind its neighbors.
In May 2013, the Ministry of Energy and Water launched the first licensing round for offshore oil and gas exploration. Fifty-two companies had previously sought to qualify and forty-six were found eligible to bid, including some of the biggest names in the industry. However, the tender has been repeatedly delayed since, due to the absence of two crucial decrees, one delimitating offshore blocks and their coordinates and another approving the model exploration and production agreement. The tender has been put on hold, much like everything else in the country. The progress that the country has made in the past few years to catch up with its neighbors is slowly vanishing. Time is of essence here. In Lebanon, we have a tendency to approach problems in an unstructured way, omitting key parameters, such as, in this case, competition and the time factor.
Why the constant comparison with neighboring countries? Because it matters. Although Lebanon did not develop a hydrocarbon policy and did not study export options in details, there has been several declarations by Lebanese officials, including caretaker Energy Minister Gebran Bassil, that Lebanon is primarily eyeing neighboring markets, among other possible options. But we are not the only ones eyeing these markets. Israel’s Delek Group and Texas-based Noble Energy are discussing a deal to sell Israeli gas to Jordan’s Arab Potash. Charles Davidson, CEO of Noble Energy, the operator of Israel’s Leviathan and Tamar gas fields, also expressed his preference to selling gas to neighboring countries such as Egypt and Jordan. Given that gas contracts are usually long-term contracts, Lebanon might find it harder to sell its gas to well-supplied neighboring countries. Having to look for farther markets also means having to invest more in infrastructure.
Various Lebanese officials closely involved in the oil and gas file, including some in the current caretaker government, have declared in the past few months that delaying the tender is “not a big deal.” The usual claim is that the gas has been locked in the seabed for millions of years, and that it is not a problem if we waited a few more months or years to exploit it. Yet we are already late and have no time to waste. New conventional and unconventional reserves are being developed, bringing more supplies to the markets and pushing down prices. Starting 2020, the year Lebanon is supposedly set to start production, a wave of new supplies will become available to global markets. The influx of cheap US gas, exploitation of unconventional reserves by countries like China, and the completion of LNG projects allowing the export of massive East African and Australian reserves, are expected to affect gas prices worldwide. While it is difficult to accurately predict gas prices years in advance, the World Bank expects prices in Europe and Asia to fall by around 10% by 2020. The International Energy Agency (IEA) believes prices could fall by as much as 30% by 2020.
Unlike what many Lebanese officials are saying for purely political considerations, it is important for Lebanon to proceed rapidly with its plans. Lebanon is not alone, and the value of our wealth is likely to diminish with time.
Middle East Strategic Perspectives has compiled the main highlights of Lebanon’s emerging oil and gas sector in 2013. Click here to read the article, which also contains a list of all the reports we published on our website in 2013.
For operational analysis, click here to order a copy of Lebanon’s Oil & Gas Sector: Potential and Opportunities released in November 2013. The 25-page report presents the Lebanese oil and gas sector, the actors that are shaping it, evaluates its strengths and weaknesses, and the opportunities it creates, and concludes with detailed recommendations designed to maximize the efficiency of a company’s entry.