Understanding the shortcomings of Lebanon in the race for Mediterranean oil wealth. Just like Brazil, bad timing might cut the country’s dreams short.
2007 - the future looks bright for Brazil. Petrobras, a semi public Brazilian multinational energy company, was announcing the discovery of one of the largest oil fields in the world, which held billions of barrels of oil, off the coast of Rio de Janerio. Brazil’s dream of becoming an oil producing power on the scale of Saudi Arabia, Venezuela or Mexico could finally happen – Brazil 2020 would become a reality.
The discovery of further deep-water oil fields in 2009 and 2010 (most notably, the Libra oil field) prompted Petrobras to raise USD$ 70 Billion (120.36 Billion Real) to finance the exploitation of these pre-salt fields, making it the largest oil and gas company in terms of market capital. All bets were on Brazil. Once oil starts flowing, prosperity would follow. Five years later, this has yet to happen. Oil production, rather than surge, has been stagnant since 2007. Strict government regulations have hobbled Petrobras, which has seen its market capitalization drop 45% since 2010.
The rise in fracking as a cheaper and more viable alternative represented another blow to the Brazilian dream: its pre-sal oil fields lost their appeal to international private energy giants, weary of an increasingly strong government. The sale of the Libra field, the biggest prospect in the world to have been auctioned in 2013, was a sham to many: only 11 firms participated, and the likes of Exxon or Chevron did not even register to bid. The endless fortunes expected in 2007 are yet to be felt in 2014. Worse, the country’s economic situation has deteriorated in recent years. Annual growth has plummeted from 7% in 2010 to 0.9% in 2012. Inflation, hovering around 6% is rising quicker than wages. S&P has even downgraded Brazil’s credit risk to negative. A combination of inept policies, changing international patterns, and most importantly - bad timing - seems to have delayed Brazil 2020.
6634 miles away; another country, another continent, 2020 seems just as far away. On January 8, 2014 Gebran Bassil, caretaker energy minister of the Republic of Lebanon has announced, for the third time, the postponement of the bidding process for a first round of licenses to explore Lebanese offshore gas fields. He comforted his audience by asserting that this would be the last time the bid would be rescheduled. Very few were reassured.
Lebanon, a small Mediterranean country, has been infamous for its sectarian conflicts and its political instability throughout the 70s and 80s. At the turn of the new millennium, it was heralded as a beacon of peace and of understanding. The country that was once torn by internal strife was now a rising start in the Middle East, with astonishing growth hovering around 8%, despite a worldwide economic downturn.
However, more recently, it has featured on international news as yet another victim of the Syrian conflict. Since the outbreak of the latter in 2011, Lebanon has suffered from this conflict’s spillover effects. The number of Syrian refugees is now estimated at around 25% of the country’s population and its economy, once booming, is now deteriorating. Tourism, trade and investment have suffered from the ongoing war. S&P has downgraded Lebanon’s to negative and Business Monitor International has ranked it 112 out of 159 countries in terms of risk. Growth has fallen to 1.4% in 2012, and the country’s debt to GDP ratio has reached 142% in June 2013, one of the highest in the world. Worse, Lebanon ranked 123 out of 124 countries on the Energy Architecture Performance Index, down from 103 rank in 2013, as outlined by Blom Bank in its recent Lebanon Brief.
If it can realistically envisage recovering from this economic downturn once the Syrian crisis ends, Lebanon can also hope for another, more durable solution to its economic woes. How? Oil wealth.
In 2012, Lebanon was poised to be the next oil-producing Mediterranean country. After the discovery of trillions of cubic feet of gas and millions of barrels of oil, a frenzy overtook the country. Just as had happened in Brazil, dreams of fortunes allowed it to hope for a solution to its burdening debt, its increasing energy dependence, and its eternal conflicts.
In April 2012, the very same Gebran Bassil announced that the first round of the bidding process for exploration would happen in May 2013, and drilling would start as early as 2016. In April 2013, 46 firms qualified to bid for the first round to explore the offshore fields.
The British Ambassador to Lebanon, Tom Fletcher, hoped for a prosperous #Lebanon2020 that would celebrate its independence, head high. The wheel was set in motion. The private sector started working towards answering the demand this new segment of the economy would create in terms of a locally qualified workforce. The University of St Joseph announced the launch of its new Masters in Oil and Gas: Exploration, Production and Management, in cooperation with Total, Attock and the French Institute of Petroleum.
International oil firms who had bought the data produced by London-based Spectrum on these off-shore reserves, rushed to open offices in Beirut. Law firms, such as Clyde & Co, are working in tandem with local firms to offer the support needed on the ground. Many hoped that the Lebanese government will start investing in much needed infrastructure to help these developments. Bassil even revised the earlier estimates, saying that more than 95.9 trillion cubic feet of gas and 865 millions barrels of oil could be found in Lebanon’s territorial seas.
But just like Brazil, the Lebanese dream is in danger of fading away. And the stakes are high. The government’s incapacity to hold elections in June 2013 has left the country in a political vacuum that is greatly hindering any progress in the race to oil wealth. Until two decrees aimed at laying out the production-sharing agreement that companies will eventually sign and officially delineating the blocks available for bidding are ratified, the first round of bidding cannot take place.
And the current caretaker government is refusing to do so, claiming it does not have the mandate for such decisions. Just like everything else in the country, this is now caught between the the two main political parties’ bickering and infighting. The hope that the energy sector would be immune to sectarian politics has quickly faded. And the delay is proving costly to the country.
Whilst reports confirm that international firms are still keen to operate in Lebanon despite political instability, the country is lagging far behind its neighbours. Israel, Turkey and Cyprus have already started exploring and/or drilling within their Exclusive Economic Zone (EEZ). Even war-torn Syria has signed a deal allowing for exploration in its water with a Russian company. Lebanon is losing the race against time, and allowing its neighbours to reap more benefits from the Mediterranean oil wealth. Just like Brazil, bad timing might cut the country’s dreams short.
And so, Lebanon should learn from Brazil’s disappointing experience if it seeks to redress its economy, and find a solution to its endless woes. The government should quickly sign the necessary decrees and reassure the likes of Exxon and Chevron of its commitment to oil and gas exploration and exploitation.
The Petroleum committee must act as a watchdog to guarantee the sector remains unpoliticised and work towards creating a favourable environment for these international oil firms who will determine the future of the energy sector in Lebanon. And most importantly, every Lebanese citizens should make sure all profits go towards rebuilding their shattered country, rather than their politicians' fancy villas.
Despite the endless delays in the bidding process, some positive developments leave scope for hopeful thinking: on the 10 of January 2014, Bassil signed an on-shore oil surveying contract with American company NEOS GeoSolutions. As reported by TheDaily Star, the firm will conduct an airborne survey of 6000 square km over the northern part of the country. The entire project is set to be completed within 18 months. British-based company, Spectrum has also already begun a seismic onshore survey of the Batroun region last year, which is set to be completed by the end of 2014. Additionally, the US is increasing its effort to mediate the maritime border dispute between Lebanon and Israel. Slowly but surely, some progress is being made to raise Lebanon to the ranks of oil producing countries. Only time will tell if it this will be enough.