Hariri resignation puts oil and gas at risk
Experts say time of the essence to save what little headway has been made
Much of the progress in Lebanon’s oil and gas sector will be lost unless a new government is formed in the next 240 days, meaning time is of the essence to save what little headway has been made, experts say.
The sector is on hold indefinitely following last week’s resignation of Prime Minister Saad Hariri, and cannot move forward without a government in place.
“The procedure with oil and gas has stopped. Now we’re back to the 2013 scenario: They were about to approve two decrees – the tender protocol and model contract, and the block designations, which were needed at the time, and then [Prime Minister Najib] Mikati resigned,” said oil and gas expert Laury Haytayan, MENA regional program manager and senior officer at the Natural Resource Governance Institute.
“We had to wait four years until we had a new president and government. In December , the first thing they [the new government] did was approve the two decrees and launch a new road map. In February, they opened a second prequalification round [for the bidding of energy companies].”
According to the tender protocol, the offers are valid for 180 days from the time they are submitted.
The energy and water minister can then add 90 days based on suggestions from the Lebanese Petroleum Administration.
As nearly 30 days have passed since last month’s bidding, that leaves just over 240 days for Lebanon to form a new government before its nascent oil and gas sector goes back to the drawing board in an already politically sensitive and complex business environment.
In 2010, energy explorations found the potential of a significant amount of oil and gas in the eastern Mediterranean. Then-Energy and Water Minister Gebran Bassil claimed that that there could be some 100 trillion cubic feet of gas and 865 million barrels of oil off the coast of Lebanon.
But most experts and even the LPA decline to give estimates of the potential size of hydrocarbon in Lebanon. They stress that the country can only know the actual size of its natural gas reserves when companies start drilling.
The regulation of Lebanon’s oil and gas sector is set by the Cabinet, the Energy and Water Ministry, and the LPA.
Last month, the LPA received two bids to explore for gas in two of the five blocks on offer. The consortium of three companies that made the offers on two blocks comprised Total SA (France), ENI International B.V. (Italy) and JSC NOVATEK (Russia).
Although the bidding went ahead as planned last month, albeit with a deadline extension, only two offers for two blocks were made, far lower than the more than 50 companies that prequalified. It is perhaps this very fear of political instability that gave pause to foreign oil firms.
“The sector in Lebanon has hit a major bump,” said Sami Atallah, director at the Lebanese Center for Policy Studies, a Beirut-based nongovernmental think tank. “Time is not on our side if the country wants to enter into the energy club. One offer for each block – that’s quite dismal. And these were companies that were already operating in the region.”
An official with the LPA, however, speaking on condition of anonymity, appeared to be relatively optimistic about Lebanon’s prospective oil and gas sector, pointing to the fact that three foreign energy companies were interested in Lebanon.
“We’ll have to wait and see, but we’re cautiously optimistic,” he said. “It’s important for the country that we already have two good offers.”
Haytayan, appeared to be more skeptical and nervous about what the prime minister’s resignation means for a sector she has been professionally immersed in for the last five years. She asked: “Is a caretaker government able to take the decision to award contracts to oil companies? I don’t think so. There won’t be any meetings of the Cabinet. What will happen to the applications?”