BEIRUT: By the time Lebanon starts producing gas, it would most likely be best for the country to reserve the bulk of its output for local consumption to help boost the industrial sector and cut the cost of power use, experts argued Friday.
Speaking at “Oil and Gas in Lebanon 2014,” a research forum organized by BankMed in Beirut, the experts added that if large quantities of gas are discovered, Lebanon could consider exporting a share of its production to regional markets, which could still prove a challenging task.
“Lebanon’s oil and gas wealth could represent a blessing for Lebanon or turn out to be a curse,” said Mazen Soueid, chief economist at BankMed, warning of adverse consequences if the sector is mismanaged.
Among the many challenges facing potential Lebanese gas exports to regional countries is the lack of a regional price for gas – something that is often determined by geopolitical dynamics, said Walid Khadduri, an energy affairs expert.
“The most important market for exporting gas is regional because consumption is increasingly significantly on an annual basis. However, the regional price of gas is determined by political pressure,” he said.
Israel is already trying to dominate the regional market by striking agreements with Egypt, Jordan and the Palestinian Authority, according to Khadduri, who warned that the European market might not provide an export destination for Lebanon.
“In five years’ time, the U.S. is expected to start exporting shale gas to Europe,” he said.
Turning to East Asia for exports is possible only if Lebanon’s offshore reserves prove big enough to allow the country to compete with big producers such as Qatar, Khadduri explained.
Channeling production toward local consumption appears to be a wise initial focus, as it would help to cut the high cost of domestic power use and boost industries such as petrochemicals, said Wissam Zahabi, head of the Economic and Financial Department at Lebanon’s Petroleum Administration.
“Depending on the quantities discovered, we can then decide whether to export to Jordan, Turkey or Europe, for example,” Zahabi said.
While Lebanon is expected to close its first licensing round for offshore gas exploration areas by Aug. 14, the bid, which was delayed three times due to political gridlock, might be postponed again, he added.
Besides issuing decrees for a model exploration and production agreement, the government must also issue a decree determining which offshore blocks will be open for bidding.
Government factions have been disputing whether to open the entirety of Lebanon’s Exclusive Economic Zone for bidding at once or adopt the gradual licensing of blocks.
According to Zahabi, the gradual licensing of blocks could help the government increase its share of profits in future licensing rounds.
So far, international oil companies that qualified for the bidding round have expressed most interest in blocks 1, 4, 5, 6 and 9, Zahabi said, citing a study by the Petroleum Administration.
Early estimates indicate that Lebanon may have as much as 96 trillion cubic feet of natural gas and 850 million barrels of oil in its EEZ, which has been divided into 10 separate blocks.
Under the production phase, Lebanon would earn revenue from oil firms in three forms, Zahabi said. In accordance with the Petroleum Law, oil companies must pay royalty fees, share oil field profits after deducting the cost of production and pay taxes on earnings.