Lebanon: The Oil & Gas Report, March 10, 2014

Edison seeking to acquire Israeli gas fields Tanin and Karish near Lebanese border?

Italian company Edison, one of the 46 companies shortlisted for Lebanon’s first licensing round (as non-operator), is reportedly negotiating a possible acquisition of two gas fields off the Israeli coast, Tanin and Karish, estimated to hold around 70 bcm of natural gas. Noble Energy and Delek Group, which are also developing the much larger Tamar and Leviathan fields, are in the eye of the Israeli Antitrust Authority which is threatening of declaring them a cartel unless certain measures are taken. Among these, the most likely seems to be selling their stakes in the smaller Tanin and Karish fields.

Tanin and Karish are respectively located in the Alon A and Alon C blocks, a few kilometers away from the Lebanese-Israeli borders. The discovery of Karish, in 2013, sparked alarm in Lebanon that Israel may attempt to siphon off Lebanon’s gas, as we anticipated when it was first announced in May 2013.

Map showing the location of Alon A and Alon C.

Edison’s move, which has yet to be officially confirmed, may threaten its chances of doing business in Lebanon, if the company is still considering taking part in offshore activity in Lebanon. In June 2013, the Italian company acquired operating stakes in the Neta and Roy offshore licenses in Israel’s EEZ. [Background: Lebanon adheres to the Arab League Boycott of Israel, and companies perceived as contributing to the military or economic development of Israel must be boycotted. Enforcement throughout the years has been selective. But a strict interpretation of Lebanese regulations might cause a few problems for companies intending to do business in Lebanon].

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New Energy Minister Arthur Nazarian outlines policy priorities

The Lebanese Economic Forum held in Beirut on March 8 under the patronage of President Michel Slaiman provided an opportunity for the new Energy Minister Arthur Nazarian to address the public for the first time on issues related to his ministry, including oil and gas. His speech delivered clear indications on the issues he will be focusing on as Minister of Energy. Nazarian listed the Ministry’s achievements and insisted on the attractiveness of Lebanon as an investment destination for oil and gas companies, based on promising seismic studies and the legal and institutional framework established in recent years. He urged the government to preserve the credibility earned over the past few years by approving the missing decrees and pursuing the first licensing round.

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Lebanon: Nazarian maintains Bassil’s advisors at the MOEW

Former Energy Minister (and current Foreign Affairs Minister) Gebran Bassil confirmed in a televised interview (Al-Jadeed, 02/03) what MESP has said in its previous report (February 24) about his advisors being kept in place at the Ministry of Energy and Water. The new minister, Arthur Nazarian, could have appointed his own advisors, but he chose to keep his predecessor’s team (technical and non-technical advisors), including César Abou Khalil.

The move was not well received by certain Tashnag partisans who may have felt marginalized by these arrangements, but it was part of the deal that facilitated Nazarian’s appointment as Energy Minister.

This not only confirms that Nazarian’s term as Energy Minister will ensure continuity but also announces a new battle over the Ministry of Energy and Water during the formation of the next cabinet (after the presidential election, which will, in principle, be held in May 2014).

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Hezbollah: Approving missing decrees and pursuing oil & gas tender a priority

A statement issued by Hezbollah’s parliamentary block on 06/03 on the need for the various political factions to reach an agreement over the cabinet statement listed the main challenges that the country is facing and the need to address them. Among these is the organization of the country first licensing round for offshore exploration. The fact that one of the major parties in the country is recognizing the need to proceed with the tender and considering it as a priority is an encouraging sign. However, it must also be noted, that Hezbollah was not among those putting obstacles and calling for postponing the tender over the past few months. On the contrary, it always called for speeding up the process. The parties that were opposed to holding the tender have yet to comment on the subject. The parliamentary debate over the cabinet statement (once it is finalized) must be followed and will be a good indicator on where these parties in particular stand.

Excerpt from our February 24 report:

One of the first items approved by the cross-party committee drafting the cabinet statement was the need to speed up the process related to the first licensing round for offshore oil and gas exploration.

This is a good signal, but not an absolute guarantee that the tender will not be delayed again. While this is indeed one of the government’s priorities, the two dominant issues on its agenda are indisputably the security situation (six car bombings in 2014 alone) and the presidential election (President Slaiman’s mandate expires on May 25, 2014).

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Lebanon: Shady gas import and distribution market an indicator of things to come?

Leaked information about an alleged terrorist attack targeting two gas filling centers in Beirut brought back to light the issue of gas distribution in Lebanon, controlled by Naftomar. The Athens-based Lebanese company owned by Talal al-Zein is virtually the sole supplier of domestic gas in Lebanon, controlling no less than 95% of the market, according to information published by Lebanese daily al-Akhbar (04/03). Naftomar supplies gas to five major companies: Cogico, Gaz Orient, Medco, United and Uniterminals. These companies, led by Gaz Orient (owned by Lebanese MP Nehme Tohme, Druze leader Walid Joumblat’s close business partner and owner of Saudi-based Almabani), monopolize the gas market in Lebanon through the ownership of all storage tanks along the Lebanese coastline. Gas import and distribution is a closed, shady business. But this is hardly an exception in the Lebanese business landscape, and reflects the interdependence between the political class and the business community. Similar arrangements were made in the Telecom sector in the 1990s and in various others lucrative fields. At the moment, there is no reason that leads us to believe that the future oil and gas sector, if it ever materializes, will be an exception.

Most Lebanese are convinced corruption will dominate the sector. A number of anti-corruption initiatives have already sprung out, before any exploration license has been awarded and years away from the first drilling. Many of these are aware of the availability of foreign funding, and are designed to take advantage of those foreign donors who are particularly sensitive to issues such as promoting transparency and good governance.

To sum up: the future oil and gas sector is not expected to be immune to corrupt practices, widespread in most other sectors in the country (Lebanon ranks 127th in Transparency International’s Corruption Perceptions Index 2013). Foreign assistance and funding is necessary to raise awareness and limit corruption. Donors should be extra careful who they fund and how they choose their partners.

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Lebanon: International support deferred to the Rome Meeting

Paris hosted on March 5, 2014 a meeting for the International Support Group for Lebanon, established in 2013 to help Lebanese institutions contain the effects of the Syrian crisis, by strengthening the Lebanese Army and addressing the challenge resulting from the influx of nearly two million refugees. The meeting, held at the Elysée palace and attended by President Michel Slaiman and President François Hollande, as well as the foreign ministers of the five permanent members of the UN Security Council, was overshadowed by the Ukrainian crisis and fell short of pledging the kind of assistance many in Lebanon were hoping for. Those who were expecting the announcement of a long list of equipment to the Lebanese Army, including materials allowing the Navy to control and protect Lebanon’s EEZ and future offshore installations, were disappointed.

President Michel Slaiman headed to Paris with only 3 months left in his mandate (and no agreement yet on extending it). He was further weakened by the fact that the newly-formed government has not yet gained the Parliament’s confidence. International partners preferred to postpone their commitments to the Rome meeting, expected to be held in April 2014. The Italians, very active on all fronts in Lebanon (strong lobbying in favor of ENI; support for the army and promises of providing patrol vessels etc.) seem much more engaged in the country than other European partners, and more determined to strengthen their presence.

The meeting, in Rome, will be entirely dedicated to the Lebanese Army and, unlike the Paris meeting, will be attended by Lebanese Army Commander Gen. Jean Kahwagi whose achievements in uncovering and dismantling terrorists cells and preventing terrorist attacks have boosted his chances as a presidential candidate. The Rome meeting, if successful, will give him an additional boost a month ahead of the presidential election.

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Previous issues:

Lebanon: The Oil & Gas Report, February 24, 2014
Lebanon: The Oil & Gas Report, February 10, 2014
Lebanon: The Oil & Gas Week, January 27, 2014
Lebanon: The Oil & Gas Week, January 13, 2014
Lebanon: The Oil & Gas Week, December 09, 2013