Complex Made Simple

Drilling for offshore oil soon in Lebanon: A savior from economic collapse?

Exploration for oil in Lebanon begins a year late but how much money can the country make?

LPA’s survey in Lebanese waters indicated potentially as much as 25 TCF or some 0.36% of world gas resources Considering prices at $50 per barrel at production stages, the Lebanese share of the potential oil resources would be worth anywhere between $22 bn and $33.7 bn Lebanese law 132 says that any funds from offshore oil and gas exploration will find their way into a Sovereign Wealth Fund

According to Lebanese English newspaper the Daily Star, drilling the first exploration well in Lebanon’s offshore Block 4 is planned to start in December 2019, while Block 9 begins in December 2020, referring to a report by French oil and gas company Total.

In April 2019, current Energy Minister Nada Boustani had announced that Block 4 is where exploration for oil&gas will begin, just north of Beirut and in October 2017, the only bidder in Lebanon’s first tender for five offshore energy blocks was a consortium made up of France’s Total, Italy’s ENI and Russia’s Novatek, was announced by then Minister of Energy and Water Cesar Abi Khalil.

Abi Khalil hands a document to Stephane Michel, Total's head of exploration and production in the MENA  

The consortium submitted two bids for block 4 and block 9, following a one-sided tender process.

Wells 4 and 9 details

 “A mobile offshore drilling unit will be mobilized to Block 4 and the exploration well(s) will be drilled vertically in [an] area … where depths range from 1,450 meters to 1,760 meters,” Total’s report said as mentioned .

Block 9’s target gas reservoir, whose drilling is set to start December 2020, will have one exploration well drilled and potentially one appraisal well.

Last April, Lebanon’s Cabinet approved the second licensing round for exploration and tenders for blocks 1, 2, 5, 8 and 10.

Courtesy of lpa.gov.lb 

Abi Khalil announced in Jan 2017 a new pre-qualification period to complete the first licensing round that began in 2013 when 52 international oil companies submitted applications for Exploration and Production Agreement (EPAs) in Lebanon’s Exclusive Economic Zone (EEZ).  

On Dec 2012, The Lebanese Petroleum Administration (LPA) was appointed to manage the logistics binding hydrocarbon reserves in Lebanon’s territorial waters.

Lebanon's EEZ 

How much oil money is expected? 

Studies based on the 2010 USGS data show that 1.7billion of recoverable oil and 122 trillion cubic feet (TCF) of recoverable natural gas may be found in the Levant basin.  The Levant Basin Potential covers approximately 83,000 km² and includes the territorial waters of Lebanon, Israel, Syria and Cyprus.

LPA’s survey in Lebanese waters indicated potentially as much as 25 TCF or some 0.36% of world gas resources, numbers that pale in comparison to Russia’s 1688 TCF and Iran’s 1193 TCF proven gas reserves, but significant to a small country like Lebanon. 

The Lebanese government in October 2013 estimated with a probability of 50% it has 96 TCF of natural gas reserves and 865 million barrels of oil offshore.

If at production, after successful exploration, 5-7 years down the road, gas prices are at around $5 per TCF, these resources’ worth would vary between $125 bn and $480 bn.

They would be sufficient to cover Lebanon’s ballooning debt at a current $85bn.

An oil reservoir was discovered in the northern maritime borders demarcating Lebanon, Cyprus and Syria which according to French consulting company Beicip-Franlab, has an estimated 440 and 675 mn barrels of oil. Considering oil price at $50 per barrel at production stages, the Lebanese share of the resources would be worth anywhere between $22 bn and $33.7 bn. A nice sum.  

The IMF estimated in 2017 that based on exploration starting in 2018; revenues would start by 2022 at the earliest and production is expected to last for 35 years, with full capacity reached by 2036. 

The Lebanese government’s take from production undertaken by consortiums like Total can vary between 57% and 78% of total revenues in line with international standards.  

Lebanese law 132 says that any funds from offshore oil and gas exploration will find their way into a Sovereign Wealth Fund. 

Is there an export market for such resources? 

The companies that took the 3D seismic surveys warn very specifically that these are just surveys; they don’t tell you how concentrated the wells are, where they are exactly, or how difficult or costly they are to extract. 

Regardless, developing export markets for LNG, oil or natural gas requires substantial investments and agreements to link up to the Arab Pipeline or a prospective Cyprus-Turkey pipeline. Neither option is currently available for Lebanon and would therefore require extensive bilateral/ multilateral negotiations that could delay potential future revenues. 

The other sensitive issue facing the government is the so-called disputed zone between Lebanese and Israeli territorial waters, a maritime dispute that began in June 2015. Lebanon and Israel both claim ownership over a possibly resource-rich 860 km² area of water near Lebanon's southern border where blocks 8, 9 and 10 exist.