The latest headlines out of Cyprus are a welcome boost for all East Mediterranean countries hoping to become oil and gas producers, but the only thing making the front page in Lebanon is the paralysis of its political system.
US-based Noble Energy, which has played a key role in helping to cultivate a hydrocarbon industry in Cyprus, Monday announced that British Gas Group had agreed to join a consortium to develop one of the most promising areas of the island nation’s offshore Exclusive Economic Zone. According to published reports, BG will pay $165 million for 35 percent of Block 12 – which includes the much-anticipated Aphrodite field, believed to contain 4-8 trillion cubic feet of gas – with Noble retaining the same share and Israel’s Delek Group holding the remaining 30 percent.
That’s a sizeable investment for this part of the world, but it’s the context that makes this deal so significant on so many levels.
Start with British Gas itself: the company’s Eastern Med footprint also includes being party to a Letter of Intent that would bring Israeli output to a BG liquefied natural gas facility in Egypt, testifying not just to its regional vision, but also to its capacity to forge business ties across political boundaries. Even more importantly, BG is in the process of being acquired by a genuine giant of the global energy business, Royal Dutch Shell, which as of 2014 was the world’s fourth largest company by revenues. The credibility injected by Shell’s participation will only re-confirm that after low oil prices and bad luck with a small number of dry wells helped dampen enthusiasm over much of 2014 and 2015, Cyprus is back on the agenda for Big Oil.
Second, consider the realities of Block 12, which carry good omens for both Cyprus and the region as a whole. Aphrodite is estimated to hold 4-8 tcf of natural gas, which would be an enormous deposit relative to the size of the Cypriot economy. The reliability of such estimates is greatly enhanced by Block 12’s location, which is just 20-30 kilometers (a stone’s throw in geological terms) from Israel’s Leviathan field and Egypt’s recently discovered Al-Zohr field, which are believed to be even larger at 20 tcf and 30 tcf, respectively.
As a general rule, finding hydrocarbons in a given spot dramatically increases the likelihood that adjacent areas will have some too. In fact, Egypt’s Zohr find last summer played a huge role in the industry’s renewed focus on Cyprus, so just as Leviathan and Al-Zohr cast Aphrodite in a better light, therefore, so do all three make neighboring Lebanon’s EEZ more attractive. Other players are interested as well: China National Offshore Oil Company, for instance, considered a stake of its own in Aphrodite last year, and Italy’s Edison is reportedly shopping for acreage in Israel’s EEZ. All of this is great news for all of the countries in question – and, when conditions permit – for Palestine and Syria as well.
Third, the timing of BG’s Cyprus play figures to show how a smartly managed oil and gas sector can actually benefit from periods of low prices that tend to bring reduced spending on exploration. It’s basic supply and demand: the less exploration is going on, the cheaper it is to hire the necessary rigs and crews. That means substantial savings for the Noble-BG consortium, increased profitability for the block in question, and greater long-term benefits for the Cypriot economy.
On the whole, then, the Noble-BG deal has to be considered a harbinger of similar lucre in Lebanon’s future as well. This country’s primary exploration zones border some of the best held by Cyprus and Israel, and total offshore reserves are estimated at a whopping 90 tcf, with another 25 tcf onshore. All other things being equal, this country can expect to attract even greater interest and investment in its energy sector than Cyprus has received, and therefore to start earning massive revenues that can pay off its debt, sharply reduce poverty, and give its people the education, infrastructure, and other public goods they need to need to build a modern economy.
Unfortunately, things are not equal, and Lebanon’s fractious political class is to blame. Genuine representatives of the public will and guardians of the national interest would have recognized the need to insulate this precious resource from the multi-faceted rivalries that have crippled much of the Lebanese state for most of the period since 2005. Instead, the politicians have allowed development of oil and gas to be held hostage by the same absurd disputes that have crippled public services across the board, from electricity and water shortages to dilapidated public schools and the continuing garbage crisis.
To be fair, some political actors have tried to break the logjam, chief among them Speaker Nabih Berri, who has been tireless in his efforts to dissociate the oil and gas issue from Lebanon’s myriad political entanglements. His hosting of new National Dialogue sessions at his residence in Ain al-Tineh is credited with helping to tone down the rhetoric in Beirut, but the real prize at this point would be to make oil and gas central to – and yet separate from – this process.
To be sure, the broader dialogue is a good thing that might limit partisan tensions until settlements can be reached on such issues as filling the country’s presidency (vacant since May 2014), passing new laws to govern the next parliamentary elections (scheduled for 2017 but overdue since 2013), and agreeing a formula for effective Cabinets (most of which have been paralyzed by internal divisions since 2005).
To be realistic, however, the oil and gas file should be the top priority because come what may on the political front, energy exports offer the country, its economy, and its people a long-awaited lifeline. There are still basic steps that must be taken in order to signal to the global energy industry that Lebanon is open for business, including approval by Cabinet of the decrees required to activate the Lebanon Petroleum Authority, the auctioning off of offshore blocks for full-fledged exploration and production, and the signing of a model gas unitization agreement with Cyprus, which would make it easier to cooperate by delineating joint revenue and monetization terms for the coming years.
In short, the British Gas move means that the biggest game in town just got even bigger, so Lebanon has more reason than ever to get off the sidelines and take control of its own destiny.
By Roudi Baroudi
Roudi Baroudi is CEO of Energy and Environment Holding, an independent energy consultancy in Doha.
