After maritime border deal with Israel, Lebanon looks to capitalise on underwater oil exploration

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Beirut (France24) — Lebanon and Israel have signed a historic agreement demarcating a long-disputed maritime border after years of US-mediated negotiations, paving the way for Lebanon to exploit the energy resources off its coast. However, analysts point out that Lebanon lacks the infrastructure and governance for a rapid shift to becoming an oil-exporting nation, so the deal is unlikely to offset the nation’s economic and social crises in the short term.

Lebanon’s President Michel Aoun and Israeli Prime Minister Yair Lapid on Thursday signed letters of intent on the deal, formally ending a decades-long dispute between the two countries, which remain officially at war. Their new maritime borders were then submitted to the United Nations.

Under the newly agreed borders, Lebanon has the right to explore the Qana or Sidon reservoir, parts of which lie in Israel’s territorial waters. Israel maintains the rights to the Karish gas field.

Lebanon has been experiencing a severe socio-economic collapse that almost doubled the multidimensional poverty rate from 42 percent in 2019 to 82 percent of the total population in 2021.

Lebanese authorities hope the maritime deal can be a stepping stone for Lebanon to begin rebuilding its economy as a move towards climbing out of the crisis.

Since 2006, Europe has increasingly viewed the eastern Mediterranean as a possible energy resource with the potential to boost economic growth in neighbouring countries, mitigate climate change by limiting Europe’s dependence on oil and coal, and reduce dependence on Russian gas supplies.

Laury Haytayan, an oil and gas policy expert at the Natural Resource Governance Institute, explained to FRANCE 24 that there will be a reasonably long wait before any gas can be extracted from the Qana field.

Total is soon expected to announce a timeline for the first exploratory drilling project and is hoping to discover a quantity of oil sufficient for commercial exploitation.

If the Qana field contains a quantity of oil sufficient for commercial exploitation the company would need to conclude “an explicit agreement with Israel” before making any major investment, Haytayan said, and this could lead to further delays.

Aphrodite is a commercial field discovered in Cypriot waters in 2011 but its exploitation was delayed because a small part of it stretches into Israeli waters and the two countries disagreed on dividing the revenues of the field.

“Even if the field turned out to be commercially viable, there are other things to consider before production such as the availability of infrastructure to export, possible markets for the gas and the expected return on investment,” Haytayan said.

Haytayan said that if Lebanon does discover enough oil to export, it would probably rely on a route running through Egypt to supply Europe.This would require more development of the only existing pipeline in Lebanon – the Arab gas pipeline – which currently only flows one way. To begin exporting, that would require investment.

If the quantity discovered is not sufficient for export, the gas could be used to meet Lebanon’s domestic energy needs, Haytayan said.

But she noted this would also require infrastructure investment, including pipelines and the development of new gas-powered plants.

Reform before exploration

Sibylle Rizk, the director of public policy at Kulluna Irada, an advocacy group committed to political reform in Lebanon, says authorities’ claims that new oil and gas exploration is essential for Lebanon to recover from its deep socio-economic crisis are misleading. Even in a best-case scenario, any potential revenue from any oil discoveries are not expected for six to seven years, Rizk said.

Rizk said Lebanon needs to recover economically before looking to exploit its new energy resources. Only then can the country properly benefit from future oil and gas revenues.

According to a joint study by the Lebanese Oil and Gas Initiative and Kulluna Irada, in the case of the discovery of 17 trillion cubic feet Lebanon could expect revenue of around $6 billion over 15 years.

Rizk noted that losses in the private financial sector stand at around $72 billion, adding that Lebanon cannot count on oil and gas revenue to rescue its financial sector and offset its failures.

Another potential pitfall is that Lebanon risks becoming another victim of the “oil curse”, a common scenario in which oil revenue creates less economic growth than expected.

Lebanon’s deep political and economic crises have left the country incapable of optimising future energy developments, Rizk said, adding: “We must ensure we have the right governance system and strategy to allocate public resources.”

“We are living the consequences, not only of bad management but of the elite dominance of state resources and the … misallocation of these resources. We must reform the [political] system before we can count on benefiting from any future gas discoveries,” she said.