Gas sector as a catalyst for closer cooperation between Lebanon and Egypt

The first six months of 2019 saw an unusual series of meetings between Lebanese and Egyptian officials, with energy cooperation at the core of these discussions. If memory serves well, the frequency is unprecedented:

January 18, 2019: A meeting in Beirut between Prime Minister-designate Saad Hariri and Egyptian Minister of Foreign Affairs Sameh Shoukry.

January 31, 2019: A meeting in Cairo between caretaker Energy Minister Cesar Abi Khalil and Petroleum Minister Tarek El-Molla. (The meeting took place hours before Hariri announced his new cabinet. Hariri reportedly delayed the announcement for a few hours to allow Abi Khalil to walk into his meeting with El-Molla in his capacity as caretaker minister, instead of former minister.)

February 25, 2019: A meeting in Sharm el Sheikh between PM Saad Hariri and President Abdelfattah al-Sisi on the sideline of the Arab League-EU Summit.

February 26, 2019: A meeting in Beirut between Minister of Energy & Water Nada Boustani and the Egyptian ambassador Nazih Najjari.

May 1-3, 2019: A 3-day official visit to Lebanon by Egypt’s PM Moustafa Madbouly and a ministerial delegation including Petroleum Minister Tarek El-Molla. The visit concluded with a meeting of the Lebanese-Egyptian Joint Higher Committee headed by PM Hariri and his Egyptian counterpart.

May 1, 2019: A meeting in Beirut between Energy Minister Nada Boustani and Petroleum Minister Tarek El-Molla.

June 15, 2019: A meeting in Beirut between Energy Minister Nada Boustani and Petroleum Minister Tarek El-Molla.

The option of resuming gas imports from Egypt was discussed extensively, especially during the first meetings of 2019. Lebanon previously imported natural gas from Egypt in 2010 via the Arab Gas Pipeline (AGP) to generate electricity. But supplies were interrupted after a few months only. With the formation of a new government on January 31, 2019, Lebanese officials explored the possibility of resuming imports as they scrambled to find solutions to the problems plaguing the electricity sector. The dire state of Lebanon’s power sector and the burden it places on the economy propelled it to the forefront of the government’s reform agenda. Government officials examined the option of importing gas by pipeline from Egypt to generate electricity – in addition to the possibility of buying electricity from Jordan in exchange for water – among the possible solutions that they thought could be implemented rather quickly.

But, importing gas from Egypt by pipeline is not without challenges:

(i) Importing gas from Egypt via the Arab Gas Pipeline would entail passing through Syria. The issue of normalizing relations with Syria is highly divisive in Lebanon and is opposed by various political actors, including PM Saad Hariri’s Future Movement. However, according to the gas supply contract previously signed between Lebanon and Egypt, negotiations with transit countries and transit fees should be handled by the supplier (i.e. Egypt). As one would expect, this is an issue with a strong political dimension and the Syrian regime, in search for legitimacy, will not hesitate to use it to get something in return.

(ii) Israel is expected to export its gas to Egypt by the end of this year. Once past the endpoint of the East Mediterranean Gas (EMG) pipeline, which connects Ashkelon to Al-Arish, Israeli gas is supposed to use the same stretch of the pipeline in the Sinai that Egypt uses to export its gas via the Arab Gas Pipeline northward to Jordan, and beyond, to Lebanon, via Syria.

(iii) Although Jordan is currently importing gas from Egypt via the AGP, many in the industry seem to think that this is only a temporary measure. In January 2019, Egypt and Jordan amended an existing gas purchase and sale agreement and agreed to increase supplies. According to the Egyptian Ministry of Petroleum, gas exports toward the end of February reached about 350 mcf/d, compared to 100 mcf/d in January. The contract with Jordan provides for exporting varying volumes of gas, depending on Jordan’s need and available quantities in Egypt. But Jordan is expected to start importing gas from Israel’s Leviathan field by early 2020, in principle, once the gas field comes on stream and the pipeline currently being built to carry the gas to Jordan is completed. This pipeline will connect to the Arab Gas Pipeline in the northern province of Mafraq and from there gas will be distributed to the country’s power plants, which incidentally adds one more technical obstacle to Lebanon’s plans to import Egyptian gas via the AGP.

These challenges mean that it is going to be hard for Lebanon to import Egyptian gas via the Arab Gas Pipeline on the short-term as it was initially hoped.

But other Lebanese officials seem to have other ideas in mind. Keserwan MP Neemat Frem met Energy Minister Nada Boustani on February 20. After the meeting, Frem told the press that he could contribute to resolving the electricity crisis in Lebanon in just six months, starting with the Zouk power plant in Keserwan and moving on to the Jiyeh power plant south of Beirut. The solution Frem proposed to the minister involves importing gas from Egypt in a compressed form (CNG), aboard special ships using a new technology. Frem appears to have been the target of a lobbying effort by one of the companies that propose this technology. These companies were actively trying to promote their technology in neighboring countries around 2013 as a potential, lower-cost, solution to otherwise stranded or difficult to exploit gas, when it became clear that monetizing offshore gas in the Eastern Mediterranean was harder than previously thought. The feasibility of this option is not clear. To date, there is only one project using this technology in Indonesia.

So then, what could justify these repeated meetings between Lebanese and Egyptian officials, much of which focuses on energy cooperation?

No doubt, there is genuine interest from both sides to strengthen bilateral ties, including cooperation in the field of energy.

From an Egyptian perspective, strengthening cooperation makes sense on more than one level.

First, Egypt is interested in exporting natural gas to Lebanon, according to El-Molla who confirmed in July that discussions to supply Lebanon with Egyptian gas, “whether through LNG shipments or others”, are ongoing.

Second, Egyptian companies are interested in investing in the various areas of Lebanon’s energy sector, as often noted by El-Molla, despite recent setbacks (Egyptian companies did not make it through the technical evaluation phase in the tender to procure Floating Storage and Regasification Units, FSRUS, and failed to pre-qualify for Lebanon’s first offshore oil and gas licensing round). As pointed out by the Petroleum Minister following his June 2019 meeting with his Lebanese counterpart, and previously by PM Madbouly at the May 2019 meeting of the Lebanese-Egyptian Joint Higher Committee, Egyptian companies are “ready to take part in tenders” and “implement projects” in Lebanon.

Third, Egypt sees itself as the gas centerpiece in the region and hopes to become the region’s gas export hub, thanks to its infrastructure and liquefaction facilities. This is a role it is actively pursuing by strengthening diplomatic relations and energy and economic cooperation with neighboring countries. From an Egyptian perspective, it is only natural for Cairo to pursue the same policy toward Lebanon, a fellow Arab country that is preparing to launch exploratory operations and may have significant offshore resources.

According to Madbouly, these efforts or overtures toward Lebanon are strongly supported by President Al-Sisi who, according to comments made by the Egyptian delegation in Lebanon in May, would not hesitate to intervene personally to overcome any obstacles facing bilateral cooperation in order to advance and strengthen relations between Egypt and Lebanon.

For its part, Lebanon is open for Egyptian investments and looks forward to benefitting from Egypt’s experience in developing its oil and gas industry, including by training Lebanese workforce in Egypt’s training centers. Beirut is also increasingly aware that regional cooperation is required to make the most out of offshore resources. When the Eastern Mediterranean Gas Forum was first announced in Cairo in 2019, Lebanon scrambled to deal with a new regional configuration that left the country out. Caretaker Energy Minister Cesar Abi Khalil was dispatched to Cairo two weeks later to discuss the newly announced forum, in addition to the possible resumption of gas imports.

In a previous piece analyzing the EMGF from a Lebanese perspective, we argued that Lebanon should not respond to this new regional configuration by isolating itself. On the contrary, if the presence of Israel prevents Lebanon from joining the EMGF, then Beirut should strive to make up for this by strengthening bilateral cooperation with the rest of its neighbors, starting with Egypt, or risk finding itself on the margin of developments. We pointed out that Egypt is best placed to reassure Lebanon:

“More than any other member State, Egypt has the possibility to reach out to Lebanon. Egypt is the key player in this new configuration, and, as an Arab country that maintains close and brotherly ties with Lebanon, it can play an important role in reassuring the Lebanese about the project while also seeking to strengthen prospects for energy cooperation between the two countries.”

This is the message El-Molla wanted to convey during his last visit to Beirut in June, where he mentioned that cooperation with Lebanon is regarded as a priority for Egypt. In an interview aired on a Lebanese TV channel, he insisted that Lebanon and Egypt should seek to strengthen relations “at the bilateral level, even if it is not within the Forum at this stage (…) We can share our experience with the Lebanese on one hand, and we can, as a country or via our public or private companies – as Lebanon wishes – contribute to supplying Lebanon with gas to meet its needs in the electricity sector”.

This article was written for the August 2019 edition of Executive Magazine.

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