Fortior is pleased to have attended the Oil and Gas in East Med Forum (OGE) in Beirut, Lebanon.
Its tourism industry being hit severely in the past years due to the ongoing war in neighbour Syria, Lebanon is now seeking to boost its economy by exploiting its untapped gas and oil resources.
In 2009 substantial oil and gas reserves were discovered in Lebanese waters of the Mediterranean. Subsequent 3D seismic studies appear to have convinced Total, Eni and Novatek to start exploration activities beginning next year. The country’s first priority now is to ensure that its resources are used wisely and that adequate infrastructure is put in place to continue attracting the global energy business.
It is to discuss these matters that Lebanon (Al-Iktissad Wal Aamal) organised last month one of its first Oil and Gas conferences in recent years. The conference was attended by the Lebanese Minister of Energy and Water, H.E. Cesar Abi Khalil, President of the Lebanese Petroleum Administration, Mr Walid Nasr, Secretary General of OAPEC, H.E. Abbas Al-Naqi, and other top officials from Middle-Eastern countries.
It would appear from the speeches that solid foundations have been and are being laid to ensure that the country’s natural resources are used to advance its prosperity and create jobs locally. The exploration contracts provide that 80% of the workforce to be engaged by Total, Eni and Novatek shall be Lebanese. To ensure that there is sufficient qualified staff in Lebanon to fill this quota, Lebanon is encouraging the development of training courses for local workforce.
Lebanon is also preparing to accommodate a new wave of expats coming into the country: the Rafic Hariri Airport is currently being expanded and a new one is under construction, while hotels and other residential projects are being worked upon, and French and Italian schools are planned for children of expat families. These efforts, in our view, are highly likely to boost Lebanon’s economy in the long-term.
Yet there are still several issues which need to be resolved so as to ensure the success of Lebanon’s exploration projects.
One of the first areas in which exploration activities are to start is the so-called Block 9, an area bordering with Israel. While most of Block 9 is undisputed Lebanese territory, sovereignty on 8% of the waters in Block 9 is disputed by Israel. The position of the Lebanese government is that Israel’s claims will not stop Lebanon from granting exploration licences for the area. While Total has said that its exploration will take place outside of the disputed waters and Eni and Novatek are expected to follow the same approach, this might still cause unneeded tensions between the two countries. The Israeli Energy Minister, Yuval Steinitz, says that “one should not even get close to the disputed line-of-contact”.
While we are not proposing to consider the rights and wrongs of Israel’s and Lebanon’s territorial claims, we would very respectfully suggest that granting first exploration licenses in other blocks while the territorial dispute between the two countries is ongoing could be a safer way to proceed with exploration. The global energy business needs political stability in order to continue investing in Lebanon. A conflict, even if not caused by Lebanon, could affect the amount of time which Lebanon might need to be able to start benefitting from its natural resources.
One might compare the situation to that of the UAE in the 1970s. After they declared their independence and substantial oil and gas reserves were discovered on their territory, a number of border disputes arose with Iran and Saudi Arabia. Instead of escalating the matter, the UAE have taken the decision to surrender the disputed areas on the basis that they had sufficient other territories in which to explore. This avoided the potential conflict, which could have delayed the UAE’s growth by many decades. Now that the UAE is strong, it is seeking to renegotiate its border treaty with Saudi Arabia. While we are in no way suggesting that Lebanon surrenders its territory, it seems undeniable that granting exploration licences for areas claimed by Israel could further raise tension, potentially affecting foreign investments into Lebanon.
The second problem faced by Lebanon is where and how it is going to export its gas. Given that Lebanon does not have any LNG terminals at the current time, the only export route open to it would appear to be the Arab Pipeline. Yet there is no way for Lebanon to use the pipeline without passing through Syria, which at the moment appears untenable. Reportedly, Lebanon and Cyprus have been in talks to develop a joint LNG facility, but it is not clear whether those talks are going to bear any fruit. Ideally, Lebanon could have used Israel’s LNG terminal, which is only about 40km from the Lebanese border, and about 40km from the border of the disputed Block 9 itself. But, given that the two states currently designate themselves as enemy powers and that there might be further escalation concerning the “Block 9” issue, this is hardly possible.
We keep observing the region with great interest. While there are risks such as those outlined above, we believe that oil and gas projects in Lebanon create great opportunities, given that LNG consumption in the Middle East is expected to grow exponentially within the next 10 years.
Fortior Law S.A. is a Swiss based advisory and dispute resolution firm. We advise on international trade, investment and shipping of commodities, such as oil and petroleum products. Our lawyers represent clients in English courts and before international arbitral tribunals in relation to all issues to do with international trade and investment. If you would like to know more, please get in touch at [email protected] or via your usual contact at Fortior.