Israel and Lebanon announced earlier this month that they had come to an agreement over their maritime border, a historic step in diplomacy that should help boost the natural gas output of both countries. As the world battles gas shortages going into the winter months, this deal provides a ray of hope for global energy markets in the future. The most recent negotiations, led by the U.S., had been taking place over several months, with the impetus for a deal beginning in 2020. The final agreement is expected to “strengthen Israel’s security, inject billions into Israel’s economy, and ensure the stability of our northern border”, according to Israeli Prime Minister Yair Lapid. Meanwhile, Lebanon’s president, Michel Aoun, stated that the deal “satisfies Lebanon, meets its demands, and preserves its rights to its natural resources.”
It appeared last minute as if the deal might not pass as Israel was prepared to reject Lebanon’s final draft of the agreement. However, due to mounting pressure to pass a deal before Aoun steps down at the end of October, and elections take place in Israel on 1st November, the two rival states came to an agreement. Lebanon’s powerful Shia group, Hezbollah, is also backing the agreement due to the country’s dire economic situation. However, the maritime border agreement should not be conflated with a peace agreement, which still appears a long way off.
Israel will now be able to produce natural gas from the Karish maritime reservoir, which, along with the Tanin field, is believed to hold 2 to 3 trillion cubic feet of natural gas and 44 million barrels of liquids. This is a shift, as Lebanon previously held claim to part of the Karish field. European and North American powers are eager for Israeli production to begin in the field, to alleviate the pressures of global gas shortages. Meanwhile, Lebanon will exploit Qana, the neighboring field. Several TotalEnergies representatives have traveled to Beirut to discuss the immediate exploration and development of the gas field.
Maha Yahya, director of the Beirut-based Carnegie Middle East Centre is hopeful of what the deal represents, “The agreement means that both countries now have vested economic interests in maintaining calm along their common border regions.” Prime Minister Lapid is also optimistic that the deal will promote greater regional stability. Heiko Wimmen, project director for Iraq, Syria, and Lebanon at Crisis Group, explained the significant change the agreement has brought about for Israel, “If it had come to conflict, their entire [gas field] infrastructure would have been under threat.” He added, “This scenario is now off the table. So of course, that's a significant win in security terms.”
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While the deal marks significant progress in the relations between the two countries, experts have been quick to criticize the deal due to certain undefined terms leaving space for ambiguity. While Lebanon will be given production rights in the Qana field, Israel will be entitled to a share of the royalties through an agreement with TotalEnergies, as the field crosses the maritime border into Israeli waters.
The agreement does not stipulate the share of profit distribution that Israel will receive from Qana, which could lead to further disagreements in the future. The deal states: “Israel shall work with the Bloc 9 Operator in good faith to ensure that this agreement is resolved in a timely fashion.” Essentially, Lebanon’s development of Qana requires Israel to come to an agreement with Total before it can proceed. This comes at a time when Lebanon is facing severe energy shortages that have led to long blackout periods as it tackles a major financial crisis.
While the development of a Lebanese gas field is expected to support financial recovery, it will take a significant amount of time to explore and develop Qana, with revenues unlikely to be seen until around 2030, and at nowhere near the amount needed to pull Lebanon out of its $100 billion debt. There is no clear picture of how much gas is in Qana but estimates value it at around $3 billion, which could bring Lebanon revenues of between $100 and $200 million a year.
Mike Azar, an analyst and former lecturer at John Hopkins, believes the deal “was ultimately much more profitable for Israel. What Lebanon got was avoiding problems it can't afford to deal with right now.” Based on Lebanon’s precarious political and economic situation at present, security is something that should not be overlooked, even if its oil and gas profits may come further down the road.
The new Israel-Lebanon maritime border deal has enabled the two powers to set clear boundaries and better understand the potential for their energy industries going forward. While Israel may be the winner in the short term, the agreement provides a better roadmap for Lebanese gas and the potential for greater foreign investment in the country.
By Felicity Bradstock for Oilprice.com
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