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As Lebanon hosts second round of applications for E&P licenses, disputed claims over gas blocks in the eastern Mediterranean are reemerging.

Cyprus' Minister of Energy Yiorgos Lakkotrypis, speaks during a news conference hosted by Israel's Energy minister

In widely-reported comments to Lebanese newspaper Al Joumhouria, Lebanese Speaker of Parliament Nabih Berri recently declared that the Israeli government's proposed “maritime areas law," which would unilaterally declare sovereignty over 860sqkm of disputed waters in the Mediterranean, to be “tantamount to sparking a war."

The Israeli bill comes amid renewed efforts on the part of both countries to secure investment in the offshore oil and gas sector.

Between February and March the Lebanese government held a second pre-qualification round for gas and oil exploration and production licenses in five offshore blocks, three of which border Israeli waters. A first round of pre-qualification had been held in 2013 with 46 companies qualifying, including Chevron, Total, ExxonMobil, Eni, Petroleiro Brasileiro, and Royal Dutch Shell.

The second round was delayed due to a political vacuum that saw Lebanon go without a president for over two years. An auction of energy assets planned for November 2014 was not held.

The results of the second round of pre-qualification will be announced on April 15, with qualifying companies to submit bids by September 15 and contracts set to be signed on November 15.

The Israeli offshore energy sector is considerably more developed than Lebanon's. Notably, the Tamar gas field is already in production. Nevertheless, the Israeli government also appears to be having difficulty attracting investment in offshore areas near Lebanon and Cyprus, both because of the political risk and because of investor concern following changes in tax rates.

In February, the Israeli Energy Ministry extended its own deadline for applications to explore a set of 24 offshore blocks by two months. Concerns about the need to provide security to offshore facilities has led to increases in spending on maritime security, including the purchase of four German-made corvettes set to be delivered in 2019 at a cost of USD460 million.

Political and security risks are not only limited to the production side. When a secret deal to sell Israeli gas to Jordan's National Electric Power Company was revealed in the Jordanian Parliament on March 20, it provoked widespread protests and calls for a boycott.

Lebanon and Israel do not have diplomatic relations and are also at odds over control of the 24sqkm Israeli-held Shebaa Farms region, as well as the participation of the Shiite militia Hezbollah in Lebanese politics.

Israeli concerns over Hezbollah's growing military capability has led it to target units of the militia operating in Syria several times over the past year.

In the absence of the possibility of direct negotiation, Lebanon has repeatedly sought mediation from the US, the UN, and France.

Meanwhile, Israel has asked the US and UN to intervene to convince Lebanon not to offer bids for exploration near disputed waters, and has stated that any UN effort to settle maritime boundaries should also deal with the disputed land border.

The discovery of oil and gas fields in the Eastern Mediterranean has been a continuous source of disagreement among Israel, Lebanon, Cyprus, and Turkey. A 2007 agreement on the maritime boundary between Cyprus and Lebanon stipulated that the three-way boundary between Cyprus, Lebanon, and Israel could only be determined by trilateral negotiations, a diplomatic impossibility given the state of Lebanese-Israeli relations.

In December 2010, Israel and Cyprus signed a deal delimiting their maritime borders in such a way that, at least according to Israel, offered it control of the 860sqkm territory.

This led to repeated claims by Lebanese officials that Israel was stealing Lebanese gas. The Cypriot-Israeli deal was also criticized by Turkey, which argued that it had disregarded the rights of Turkish Cypriots to be represented in any negotiations affecting the island.

Lebanon, which currently imports all its energy resources, is under significant economic pressure as a result of the ongoing civil war in neighboring Syria. Since the start of the war in 2011, the important Lebanese tourism sector has declined significantly and the country of around 4 million now hosts over 1 million Syrian refugees. In 2014, then Minister of Energy (and current Minister of Foreign Affairs) Gebran Bassil claimed that Lebanon could hold offshore reserves of at least 96 trillion cubic feet of gas and 850 million barrels of oil, comparable to estimates for Israel's reserves.

According to Lebanese law, revenue from production-sharing contracts for offshore oil and gas production must be put in a sovereign wealth fund, the creation of which is pending legislation.


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