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This Week in Energy: Lebanon - Slow Start on Big Oil and Gas

As of 20 March—and after an entire year of destructive delay—Lebanon officially has a new Cabinet, which for foreign oil companies should mean that the legislation necessary for offshore oil and gas exploration in the highly prospective Levant Basin should finally get underway.

The new government plans to “accelerate measures related to licensing for oil drilling and extraction,” which is significant for a country whose debt is around 140% of GDP.

Interest in Lebanon’s portion of the Mediterranean Levant Basin has been spurred on by significant discoveries in Israel’s portion of the basin—where production at one field has already begun—and with the prospects of drilling offshore Cyprus.

But in Lebanon, politics—as it has a tendency to do—has gotten in the way, meaning that Israel and Cyprus enjoy a considerable head start here. An earlier attempt to form a new Lebanese government was in part stymied by bickering over who would control the coveted energy portfolio. 

Related Article: Levant Basin Energy Advisory

Just over a year ago, Lebanon’s embryonic Petroleum Administration was working in full force to pave the way for the country’s first offshore auction of oil and gas blocks in the Levant Basin. But then, in late March 2013—at the same time that the names of over 50 companies who had submitted bids were being released--the government of Prime Minister Najib Mikati collapsed.

Despite the government collapse, work on the auction continued, with 46 of those bidders being officially approved, including France’s Total SA, Royal Dutch Shell and Exxon Mobil. New seismic data was released, showing greater potential than previously thought, and optimism was running very high. It was short-lived.

In the ensuing political chaos, decrees key to the offshore auction were left unsigned: one detailing a revenue-sharing model and another demarcating Lebanon’s offshore oil and gas territory in the basin. The auction could not proceed without this legislation, and it was deemed that interim authorities were not mandated to address the issue.  So everything was put on hold.

Now that a new Cabinet has been endorsed, and Prime Minister Tammam Salam has won an overwhelming vote of confidence, the general consensus is that oil and gas licensing will move forward as quickly as possible.

Related Article: Lebanon’s Oil Future on Hold

Assuming Lebanon’s new Cabinet deals with its unsigned decrees quickly, and an auction and exploration get underway at a reasonable pace, what follows will get very interesting from a geopolitical standpoint. The Levant Basin oil-geopolitics nexus is already a fascinating one with just Israel, Cyprus and Turkey in the mix—but add a little Lebanon to the mix and we have an entirely new recipe emerging.

If Lebanon wants to make the most of its potential oil and gas resources—which certainly is the whole point as far as foreign oil companies bidding on blocks are concerned—it will mean dealing with Israel, Egypt and Cyprus.

As International Gas Union President Jerome Ferrier controversially pointed out at an oil and gas conference in Beirut in December 2013, Lebanon can’t go it alone if it wants to make a profit. The country would need to work in a consortium with Cyprus, Egypt and, worst of all, Israel. And it is this reality—more than anything—that gives us a sneak preview of how Levant Basin oil and gas will necessarily force a significant change in the geopolitical realities of the Mediterranean and Levant regions.

By. James Stafford of Oilprice.com




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