Reality check for East Med oil and gas - NOW LEBANON - MATT NASH
Lebanese politicians talk as though the country is “oil-rich.” That’s a mistake this early in the game
This month both Israel and Cyprus were reminded of an important lesson in searching for offshore oil and gas: nothing is guaranteed until you start to drill. Lebanon should pay attention.
As recently as early September, Shemen Oil and Gas Resources – an Israeli company chaired by former Israeli Army Chief of Staff Gabi Ashkenazi – said a field it wanted to explore showed “significant signs” of natural gas, and possibly even oil. After actually drilling, however, the well – known as Yam-3 – turned out to be dry. No gas. No oil. No windfall profits.
The disappointment is Cyprus was far less severe but still significant for the gas export infrastructure the island is hoping to create. On October 3, US-based Nobel Energy revised downward their estimate of how much gas the Aphrodite field holds. Initial estimates put the amount at a mean of approximately 7 trillion cubic feet (tcf).
After drilling a second appraisal well to better judge how much is actually there, Nobel said the approximate mean amount of gas is only 5 tcf. Cyprus will reportedly have to delay plans to build a liquefied natural gas facility as a result.
How does this relate to Lebanon?
For starters, this is the first “bad news” to come out involving the Levant Basin, the only basin within Lebanon’s exclusive economic zone. A much-touted 2010 study by the U.S. Geological Survey found an estimated “mean of 1.7 billion barrels of recoverable oil and a mean of 122 [tcf] of recoverable gas” in the basin. Before and, until recently, after the study came out, all of the news concerning the Levant Basin was gas find after gas find.
Recent disappointments by no means prove the study was wrong or that the basin is empty; they just act as important reminders that, until drills are actually burrowing into the seabed, estimates remain just that – estimates.
Beirut’s political class would do well to remember that.
Mona Sukkarieh, who works with the consultancy Middle East Strategic Perspectives, summed up quite nicely the problems with the current discussion of oil and gas in Lebanon.
“We have a serious problem of rhetoric in Lebanon,” she wrote in an email to NOW. “[The] political class and media already refer to Lebanon as a balad nafti (oil-rich country), years away from the first drilling and despite the fact that studies talk more about potential gas resources than oil resources.”
Indeed, earlier this year billboards bearing the Ministry of Energy’s logo were promising free health care, a fully-funded and much improved army and some sort of bullet train, among other things. On launching the first licensing round – which still hasn’t actually launched – Bassil even showed attendees a video based on this comic book promising to solve all of the country’s problems.
Seismic surveying off Lebanon’s coast has been very promising, but potential does not fill state coffers with cash.
As Sukkarieh noted in an email exchange, “a field is commercially viable if extraction of the oil/gas can be done at a profit.”
It is entirely possible that the first exploratory and appraisal wells dug in Lebanon could find nothing or could find such small amounts that the companies who have to invest (read: pay millions of dollars) to extract it find the enterprise not worthwhile. If international companies would LOSE money extracting oil or gas, they’ll simply let it stay where it is.
On top of that, we all have to remember that most of the people talking about how enticing Lebanon’s waters are stand to make money off of the process no matter what. Lebanese officials have an interest in hyping up potential to attract interest and investments. The country has already made $34 million selling seismic data – and the companies who did the surveying have made a lot too, and are equally giving rosy predictions.
Do developments in Israel and Cyprus mean Lebanon will never be resource rich? No, but big finds in those countries similarly do not prove the dollars will start pouring in any day now. In fact, until the political class can get its act together and moves forward on the licensing round, all talk of riches and resources is little more than speculation. At this stage, transparency, good governance and de-politicizing the whole process to actually move forward should be Lebanon’s focus, not how “oil-rich” the nation will become