Oil firms will not drill in disputed zone: Spectrum

Spectrum has carried out surveys of Lebanese’s potential offshore gas reserves.

BEIRUT: A leading company said Tuesday that international oil firms were not willing to explore for gas in the disputed territorial waters with Israel until the demarcation of this area was completed and voiced support for auctioning off all of Lebanon’s 10 blocks to the bidding companies. “International oil companies which are bidding for gas exploration in Lebanon are not ready to make any drilling in the disputed territorial water with Israel until the demarcation of this area has been completed,” the CEO of British-based company Spectrum, David Rowlands, told The Daily Star.

Lebanon and Israel are at loggerheads over the 850 kilometers of territorial water that each claims as part of its exclusive economic zone.

The disputed area reportedly has abundant quantities of natural gas and oil, and Israel has sent clear signals that it will not allow Lebanon to drill for gas there.

Parliament Speaker Nabih Berri has called on the caretaker Cabinet to speed up the endorsement of two decrees that designate the 10 offshore blocks for oil exploration and set the model for revenue sharing.

Berri fears that Israel may seize part or all of the disputed zone if Lebanon does not move quickly to exploit the country’s gas wealth.

Some political quarters have expressed concern about any attempt by Lebanon to drill for gas in the disputed area, warning that this step could trigger a war with Israel, and have advised the Lebanese authorities to seek the U.N.’s help to demarcate this region.

But a diplomatic source told the newspaper that the United States has been mediating between Lebanon and Israel in an attempt to reach a solution for the disputed area.

“The Americans have held separate talks with Lebanon and Israel in a bid to end the row over the disputed zone. These mediations have stopped suddenly but I believe that these efforts will resume soon,” the source explained.

While Berri called to approve 10 blocks for drilling, a source familiar with the oil licensing argued against the idea of auctioning off all of the blocks.

“We have to follow the example of other countries. Cyprus, for example, auctioned one block only out of the many blocks it has. This way the country can determine for sure the size of gas in the first block before committing the rest,” the source said.

He added that the 12 operating oil companies had already received the list of the five blocks which will be auctioned off.

“The Petroleum Administration has named five blocks and each of these blocks has a specific geological structure in order to determine the size of gas in each of these blocks,” the source said.

Rowlands, however, supported Berri’s call to bid for all of the 10 blocks at one time.

“It is much better to have all of the 10 blocks to be bid on, because if there are only four or five blocks then some of the oil companies might say this is much too competitive and we do not want to wish for such competition for such few blocks,” he said.

He stressed that it was by far a better thing for the government to include as many blocks as possible.

“The government has the right not to award all the blocks but it is better to include the biggest number of the blocks to attract the companies,” Rowlands said.

An energy expert advised the authorities to divide the area into more than 10 blocks and gave the example of Cyprus and Israel, which have dozens of blocks that were up for grabs.

“There is no justification for the ministry to have limited Lebanon’s area to 10 blocks and not more. In neighboring countries, for example, Israel has [over the last 10-12 years] divided their areas into 41 to 44 blocks and still [are] increasing,” the expert said.

“In a previous study executed during the years 1998-2008, a schematic sketch was drawn by several professionals and had divided the 22,500 square kilometers into 17 blocks.”

He added that these 17 blocks were supposed to expand to 25, adding that the geologists for the Energy Ministry should evaluate several depths starting from 150 meters to almost 2,100 meters for each block.

“They should also consider the exploration and production sharing agreement between the Lebanese government and International Oil Court and the proximities of the exclusive economic zones with Syria, Cyprus and Israel,” the expert said.

But he supported caretaker Energy Minister Gebran Bassil’s call to not auction all of the blocks in one shot.

“To tender out all of the blocks for exploration at the same time, there has been no country in the world – developed or underdeveloped or being developed – that has ever gone out to release the tenders for their complete acreage, all blocks at the same time.

“Usually the best practice in this industry is to go out for one or two blocks to start testing their hydrocarbon potential and wealth, and prospectivity of the zone ... by moving surely and slowly. This will guarantee the government to enhance their fiscal advantages and royalties on every tender for every block as their income will increase drastically,” the energy expert argued.

The diplomatic source who declined to be identified also advised Lebanon not to put all of the blocks for auction:

“Ideally it is better to start with one or two blocks and wait for results in order to determine on their size.”

He added that countries such as Cyprus and Israel had divided their gas and sea wealth in the maritime area to more than 30 blocks and Lebanon should do the same.

“To drill in one or two [blocks] is more ideal until further notice. But if you auction all of the 10 blocks at one time, it is very suspicious,” he said.

He warned that by the time Lebanese politicians finished quarreling over their share of oil and gas wealth, other neighboring countries would have started to benefit from the gas they extracted from the blocks.

The source concurred that it was not prudent to drill in disputed waters, advising the Lebanese authorities to take their case to specialized international courts to demarcate the disputed zone with Israel.

He also underlined the importance of establishing the actual royalty share of Lebanon in the demarcated blocks.

Companies and investors have also expressed clear frustration at the continued delay in endorsing the two decrees and some agencies have warned against missing a golden opportunity to tap into Lebanon’s massive gas wealth.

EFG Hermes has recently published its quarterly economic review in which it considered the economy in Lebanon to be paying a heavy price for political instability.

EFG Hermes has cited the country’s energy potential where it considered politics to continue restricting the sector’s growth:

“In fact, Lebanon failed to launch its first auction of exploration licenses due to political disagreements. While the decrees need to be issued before November, in order to meet the deadline, the bid round has already been postponed until Dec. 10.

“Successive delays and lack of clarity on the political picture threatens the credibility of the country’s government and could lead to companies withdrawing from the bidding process.

“Hence, EFG Hermes does not expect any development in this part of the economy in the near future.”

A version of this article appeared in the print edition of The Daily Star on October 09, 2013, on page 5.




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