Seismic Surveys Set, But Offshore Delays To Continue
BMI View: Further seismic surveys scheduled for Lebanon's offshore acreage are yet another sign of growing interest in the Mediterranean's potential. Yet despite the region's potential, Lebanon is likely to continue to lag its peers in establishing exploration and production (E&P), due to systemic and persistent political risks. Given Lebanon's plans to increase its reliance on natural gas as a fuel source, continued delays in developing domestic resources will translate into a greater reliance on imports.
Geoscience data providers Dolphin Geophysical and Spectrum announced that a new round of 3D seismic surveys is to take place off Lebanon's coast. The surveys, with data expected to be ready by the end of 2012, will provide advanced information regarding prospective plays in the region at a critical time. Lebanon had intended to launch its first offshore licensing round in 2011, but delayed action on the back of continued political crisis in the country.
Since then, Lebanon's political troubles have only grown, while interest in the region's offshore potential has similarly increased with substantial discoveries near Cyprus and upcoming commercial production in Israel. In 2010, the US Geological Survey (USGS) reported that deposits in the Mediterranean's Levant Basin Province - covering waters offshore the Gaza Strip, Israel, Lebanon, Syria, Cyprus and the Turkish Republic of Northern Cyprus (TRNC) - may hold natural gas deposits approaching 3.5trn cubic meters (tcm) and oil reserves of 1.7bn barrels.
Israel has moved quickly towards commercialising resources, with first gas from the offshore Tamar gas field expected by 2013. Moreover, on the back of offshore production, we expect Israel to become a net exporter of natural gas by 2017.
|Aphrodite's Noble Realm|
|Israeli, Cypriot Acreage & The Disputed Israeli-Lebanese Maritime Border|
Gas Powered Future
Israel has also moved to set up floating liquefied natural gas (FLNG) infrastructure, as a flexible short-term solution in the wake of volatile supplies from Egypt (see our online service, July 26 2012, 'LNG Imports To Provide Security And Flexibility'). The measure will act as bridge until domestic volumes come online.
Lebanon has also been making progress on LNG import infrastructure, with the country's Energy Ministry announcing it has already completed a technical and feasibility study for offshore import terminals that would be connected to a 173km gas pipeline transiting the country. According to the Ministry of Energy, gas consumption in Lebanon could rise rapidly from time the LNG Terminal comes online in 2015 to reach 4.7bn cubic metres (bcm) by 2020 and 5.8bcm by 2030.
Lebanon is already betting on a gas powered future, adding new units at its Beddawi, Zouk and Jiyyeh power plants to reduce its reliance on gas oil in exchange for LNG. Using LNG instead of gas oil will translate into substantial savings for the country's fuel bill. If Lebanon were able to tap its offshore resources, the upside potential would be significant given the country's high debt burden.
However, continued delays to launching domestic exploration and production (E&P) suggest the country will remain reliant on natural gas imports well into the future despite its offshore potential. Although we continue to view domestic production as likely at some point, offshore production in Lebanon will continue to be a slow moving process.
|Lebanon's Government Debt As Percentage Of GDP, 2000-2016|
Delays Make For Uncertain Timeline
As we have noted, political disputes within the government remain an obstacle to E&P. Cyprus and Israel are much further ahead in their efforts to exploit offshore resources, yet Lebanon has seen interest expressed by UK independent Cairn Energy, which set up a joint venture (JV) in preparation for an eventual licensing round (see 'Cairn Eyes Mediterranean Future As Lebanon's Offshore Prospects Rise,' August 25 2011). Already delayed by political tensions, the ongoing crisis in neighbouring Syria is causing a deterioration in the both the political and security landscapes in Lebanon. This suggests further delays to progress in both the licensing round and efforts to establish the country's oil and gas industry more broadly are highly likely.
Elections, scheduled for 2012, and continued gas shortages with disruptions in Syrian supply, are placing pressure on political leaders to move forward, but ever present ethnic tensions in Lebanon remain an obstacle. The country's petroleum administration is to be made up of six members, with one from each of the country's ethnic-religious group. It will act as a national oil company (NOC) until one is formally established. With ethnic fault lines already slowing progress down, the disputed maritime border with Israel further complicates the outlook. Although early licensing rounds are not expected to include blocks in the disputed maritime border with Israel, it is a crucial obstacle to the sector's long term development in Lebanon (see 'Delays To Offshore Round Benefit Cypriot Exploration,' April 11).