Lebanon’s nascent hydrocarbons industry promises to provide a big boost to the economy. After a sluggish few years, things picked up at the start of 2017 when two critical decrees were finally passed, allowing the offshore reserves tender process to begin. Beyond speaks exclusively to Wissan Chbat, head of the Geology and Geophysics Department and chairman of the board at the Lebanese Petroleum Administration, to discuss the background and outlook for this industry.
The LPA is a government body attached to the Ministry of Energy and Water (MOEW). We are responsible for regulating the upstream sector (exploration and production) according to Law No. 132 that was promulgated in 2010, which is the “Offshore Petroleum Resources Law.” We are at present a team of 20 people covering six departments: legal, technical and engineering, geological and geophysics, strategic planning, economic and finance, and HSEQ (health, safety, environmental and quality). Our main role is supervision and monitoring of the offshore petroleum activities. Our team has already been working on various projects, drafting degrees, preparing new laws and preparing the detailed 3D seismic data (which is available for the companies to have so that they can assess the risk of offshore Lebanon).
Lebanon’s hydrocarbon path: What took so long?
At the end of 2012, the government approved the opening of the first offshore bidding round, with ambitious plans to close it by November 2013 and award the companies by February 2014. That however, did not take place. There are two parallel tracks in this industry: one is execution, which is related to operations and the second is the legal side and fitting it into the constitutional framework. We had issued many decrees, which were approved (around 27) before April 2013. The two most vital decrees – one concerning the offshore blocks (seen on the map) and the tender protocol with the associated exploration and production agreement – were issued during this period. In mid April 2013 we announced the results of the pre-qualifications, so we also organized a pre-qualification round. We opened the bid round to receive the applications in May 2013, which was supposed to close six months later in November. This was not achieved. These decrees were not ratified – which meant that these pre-qualified companies were unable to bid – and the Minister kept on postponing for various reasons, but mostly because there was no consensus. It could be because of the political stalemate and it could be that there were lots of technical information that people wanted to digest and assimilate.
Kick-starting the stalled decrees
When Prime Minister Tammam Salam assumed office in February 2014, there was an appointment of a ministerial committee from different disciplines and political parties to study these two decrees. Comments were shared and we then modified what we could and submitted revision 5 in October 2015. Since then we have not had any progress. After the election of President Aoun in October 2016, who expressly mentioned in his inauguration speech that Lebanon’s natural resources must be explored speedily, followed by the same pledge in the new government’s action plans, we still did not see any progress until January 2017, when these two decrees were finally passed.
Lebanon cannot afford to sit idly by these decrees come at an important time in the area. We cannot sit back and wait any more. There is exploration activity going on in Cyprus, the Israelis are drilling in offshore Palestine, there are new discoveries in Egypt, and companies are interested in this area. On the geopolitical and the market scene, if we do have hope to extract gas, first we have some local market obligations, then we need to think of export – to where and how? We cannot be outside of all these agreements taking place because gas is dealt with differently than with oil. With gas you have to make sure you have a market, then agree on long-term contracts before you start drilling and producing. This market will become tougher with time because we are arriving late.
Lebanon’s timing and its hydrocarbon neighbors
It’s important to note that the Israelis have opened several blocks in offshore Palestine and they are expected to close their bid round in spring 2017. Cyprus is now on its third bid round having already awarded a few blocks. This is why the completion of our bid round is coming at a very strategic time, because if we did not take action these companies would think Lebanon has nothing to offer now. This is why we are pushing to have our pre-qualifications round, which should be announced by mid-April 2017. We then open a five-month period for bid receiving. We had 46 companies from 2013 that were pre-qualified, but maybe they are not all interested in bidding again. So we have this group, plus a new set of companies that will be interested in this new pre-qualification round that would be entitled to bid. Then from April 15 until September 15 is the timeframe for submitting the applications. During this time companies who bid buy the seismic data, analyze data, and submit their proposals. Until October 15 we are assessing these proposals followed by reporting them to the Minister. Next, everything goes to the Council of Ministers to decide which blocks will be awarded in the first bid round, which should take place by mid-November of this year. If things go as planned with no major setbacks, we should be able to award by the end of 2017.
Potential oil and gas revenue for Lebanon
We know that Lebanon is part of the Levantine Basin and thus far studies on paper show good potential, which has been confirmed by good discoveries. In Lebanon’s case we have undiscovered resources estimated on paper from the seismic data. However, since we are in a basin that has had good discoveries we can assume this too in our blocks, but we do not know yet about volume. We are looking at an exploration area of 22,700 square kilometers (almost double the area of Lebanon). Definitely we are seeing something prospective, so the next step is to have a commercial discovery. For that there are risks we have to mitigate, such as geological and exploration and so forth, so it’s still early to estimate revenue.
How oil compares to gas
There are two ways to deliver natural gas: either via pipeline or to liquefy it and send it by ships. With oil, since it’s a fluid, you can deliver it via pipelines or you can store it in tankers; therefore it is easier to process and deliver. Also it is sold as “spot contracts,” which means that your ship can be sailing and you may get a request for oil that you can immediately deliver to the client. Oil as a commodity is preferred because it is easier to sell. Gas however, is strategic because both the increase in environmental requirements and the demand for hydrocarbon fossil fuels can no longer be met by oil alone. We have reached a certain ceiling or saturation in oil production, whereas with gas we are still a long way from the saturation point.
Maritime space disputes with hydrocarbon neighbors
There are always issues at the borders that both sides won’t agree on. With Cyprus to the west, we both have the same legal bases – both nations have approved the United Nations Convention of the Law of the Sea (UNCLOS) and a median line has followed. The northern border to Syria has been done the same way taking the equidistant median line. To the south however there is an area of 860 kilometers, which is for Lebanon but the Israelis are claiming it to be theirs. However, Israel and Syria did not sign the UNCLOS agreement. As usual in cases like these a third party has been involved and a U.S. envoy has been mediating this issue.
Drilling distance from the coast and environmental protection measures
We have our maps with our targets indicating where drilling could be, which are at least 15-20 kilometers away. We also created a buffer zone, which is about 6-9 kilometers along the coast for touristic purposes and fishing so there can be no conflict. The operation will be set with floaters and rigs at one to two thousand meters water depth. Law No. 132, along with our decrees, are very strict on environmental protection, plus the Ministry of the Environment has its own regulations, so we have covered this the best we can before the offshore work begins.
The hydrocarbon industry and creating jobs for the Lebanese
There would be job creation but most of the roles would not be in the exploration phase but in the production and the industries resulting from that, such as construction, facilities, and petrochemicals. So for every engineer I would say in the field, during exploration and production, if you follow all the business cycle and have people working in all the business cycle of oil from upstream to downstream and you have proper planning and energy strategy for the state and you manage to intensify the returns to the Lebanese public – it will create eight to 10 jobs between technicians, assistants, and so forth. So most of the jobs will not only involve the actual production of the hydrocarbons but also how to use the oil and gas, in making fertilizers, in petrochemicals, in processing, in the shipping and the piping, and so forth.
