Is Lebanon’s Natural Gas Boom Dead In The Water?

Is Lebanon’s Natural Gas Boom Dead In The Water? |

Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest.
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Is Lebanon’s Natural Gas Boom Dead In The Water?

Description: Absent any discovery thus far, there has been little talk as to what to do with Lebanon’s offshore hydrocarbons, once found and deemed commercially viable

Tags: Eastern Mediterranean, Energy, Cyprus, Turkey, Lebanon, Exploration, Eni, Appraisal Wells, Leviathan, Zohr

Ticker:  The Eastern Mediterranean has been a household name in European energy circles for quite some time, with the undisclosed demise of erstwhile plans to link Turkmenistan to Europe elevating it to priority level for Brussels as there was no other realistic non-Russian pipeline project around. The Levantine Basin did indeed produce some remarkable discoveries, especially in the early days of exploration of early 2010s – the Israeli Leviathan (2010) and Egyptian Zohr (2015) have substantially boosted both countries’ upstream standing. Hence, when Lebanon awarded three Blocks in its offshore zone to a European consortium comprising of the French Total, Italian ENI and Russian NOVATEK, hopes were running high that the EastMed craze might have a new standard-bearer. 

Hopes for a 2020 breakthrough for the Eastern Mediterranean were first curbed by ExxonMobil announcing that it would postpone two exploration wells next to its 2019 Glaucus discovery, later accentuated by the ENI-Total tandem adjourning appraisal works on their 2018 Calypso discovery, effectively bringing Cyprus drilling activity to an almost halt this year. But the real enthusiasm-killer came several weeks later when the Total-ENI-NOVATEK consortium stated that the first-ever exploration well in Lebanese waters, the Byblos-1 well in Block 04, turned out to be dry. Things might still turn for the better if the consortium’s second well planned for 2020, in Block 09, is not postponed (there are some rumours about it being moved to H1 2021) and discovers commercial hydrocarbon deposits. 

It is noteworthy to analyze the specificities of the Byblos-1 well, spudded to a total depth of 4 076 metres. The Byblos prospect was determined based on seismic surveying, located some 30 km from the Lebanese seashore, and was drilled in water depths of 1500-1700 metres. By targeting the Lower Miocene, the European consortium went for a more conservative commencement to its Lebanese drilling program – might have gone for a much riskier option to drill in the untapped Mesozoic, hoping to come across a carbonate platform similar to that of Zohr. Interestingly, the Byblos-1 did encounter gas deposits yet these turned out to be (thus far) incomparable to the first Israeli offshore discoveries.

Related: Should U.S. Shale Be Worried About A Chinese Takeover? Concurrently to the drilling taking place, the Lebanese Energy Ministry has launched the 2nd Offshore Licensing Round last year, with results expected to be announced after April 30, the extended submission deadline. The Licensing Round encompasses Blocks 1,2,5,8 and 10 – three of them (1,8 and 10) were already present in 1st Licensing Round but generated no bidding interest. Block 5 will most probably be the most hotly-contested part of the auctioning as preliminary reserve assessments put its reserve base at almost double of Block 4, considered by many to be the prime spot for drilling in Lebanese offshore. Once again, firms are not allowed to go at it alone, consortiums of at least 3 companies ought to be formed to successfully bid for a block. 

As surveying works to assess Lebanon’s resource bounty remain a work in progress, it is quite difficult to put forward a credible approximation of the Levantine nation’s reserves. If one is to believe Lebanon’s Energy Ministry initial estimates then its EEZ should contain around 30 TCf of natural gas and 660 MMbbls of oil (these figures were increased in 2013 by then-Minister Jibran Basil, to 96 TCf and 865 MMbbls correspondingly). The first 3D seismic survey carrier out in Lebanon’s EEZ put its recoverable gas reserve tally at 25.4 TCf. Heating up investor interest for Lebanon’s offshore is a laudable effort from the Energy Ministry, however it might create a bubble of overblown expectations on the part of the population. 

Related: Could This Become The World’s Newest Oil Exporter?

Absent any discovery thus far, there has been little talk as to what to do with Lebanon’s offshore hydrocarbons, once found and deemed commercially viable. Lebanon uses no natural gas right now and imports its oil and crude products, therefore any delay on the country’s commercialization of offshore gas will take place to the detriment of domestic customers. Although most of its drilling was built around the premise of Lebanon exporting liquefied natural gas (LNG) from its then-proven fields, Beirut might even be better advised to look around its immediate vicinity. It will be very difficult to launch a large-scale exploration drilling program against European LNG prices bottoming out, not to speak of the diplomatic threat of Turkey derailing any attempt to market Eastern Mediterranean gas in Europe, especially from Cyprus. 

With Lebanon’s ambitious offshore plans now open to question, all the results and delays led to a formidable situation when the only country actively drilling in the Eastern Mediterranean is Turkey – what makes it even weirder is that Turkish drillships also search for hydrocarbons in territories which are internationally recognized as Cyprus’ exclusive economic zone (right now it is Block 06 and 07 that are jeopardized). Turkey uses the Fatih and Yavuz drillships, as well as the Orucreis and Barbaros research vessels to assess the hydrocarbon potential of Cyprus’ offshore. According to Turkey’s Foreign Minister Mevlut Cavusoglu, Turkey has acquired a third drillship (Kanuni) which it was ready to use as soon as it was needed in the Eastern Mediterranean. Although the European Union has taken some steps against Turkish energy officials, it has failed to stop Turkish exploration advances in Cypriot territorial waters. 

By Viktor Katona for

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Published at Sat, 30 May 2020 19:00:00 +0000-Is Lebanon’s Natural Gas Boom Dead In The Water?

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