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Abu Dhabi, UAESunday 23 September 2018

Exclusive: France's Total to stay clear of Lebanese maritime area contested by Israel

Beirut is hopeful of gas recovery offshore that could lower its fuel import bill

Hopes of energy independence in Lebanon were revived by the formation of a new government in 2016, with the election of Michel Aoun as president and Saad Hariri, above, as prime minister. Marwan Tahtah / AFP
Hopes of energy independence in Lebanon were revived by the formation of a new government in 2016, with the election of Michel Aoun as president and Saad Hariri, above, as prime minister. Marwan Tahtah / AFP

French oil major Total will avoid work in the maritime area disputed by Lebanon and Israel as Beirut starts its delayed offshore exploration for oil and gas in the Mediterranean, the company's chief executive said.

“We are a commercial company and we do things respecting the laws of the country and in the end, we do not target to drill anything near the Israeli border," Patrick Pouyanne said in an interview with The National. "I’m very clear about it, It’s not because we’re afraid, it’s because the geologists told us don’t drill there. We drill where the geologists ask us to drill.”

Total, in consortium with Italy’s Eni and Russia’s Novatek, won two blocks offshore in Lebanon’s licensing round held under its newly formed government. Exploration work by the consortium partners is set to start next year.

Lebanon has one of the highest public debts in the world and this reached US$80 billion (Dh294bn) - 150 per cent of the country's GDP - at the end of January. The debt crisis has in recent years been exacerbated by political uncertainty, internal disagreements and the burden of hosting more than a million Syrian refugees, about a quarter of the population.

The country imports about 90 per cent of its energy needs, which is mainly environmentally inefficient fuel oil, to keep power stations running.

Several high-profile discoveries in the Mediterranean over the past couple of years, notably in Israel, Egypt and Cyprus, have raised hopes of a similar yield offshore of Lebanon. However an absent government and fear of arbitration with Israel, which plans to pursue exploration work in the disputed area, have long stalled Lebanese efforts to tender the blocks.

In December, the Lebanese cabinet approved bids on two blocks - nine and four submitted by a consortium led by Total, Eni and Novatek - to explore for oil and gas.

Block 9 lies in an area offshore Lebanese territorial waters that is disputed by Israel. Lebanon and Israel have no diplomatic ties and the two countries are technically in a state of war.

"Maritime disputes are not new in the oil industry; what is typical is that they take a long time to be resolved," said Dr Carole Nakhle, chief executive of Crystol Energy, adding that in the case of Lebanon and Israel "one can only expect the dispute to last much longer".

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Mr Pouyanne said that for now, exploration along Block 4 will be a priority for the consortium, that will stay clear of the disputed concession area.

“Block 9 is a frontier which is disputed. It’s a limited area - 9 per cent or 8 per cent of the surface; we are very clear, our geological target is not at all in this disputed area, it is 25 kilometres north of that,” he said.

According to reports by the Lebanese media, arbitration efforts by the United States to mediate over the disputed concession block last month failed. The Lebanese side reportedly refused negotiations with Israel over concerns that it could be dragged into future peace negotiations, reported Al Joumhouria newspaper.

Lebanese political party Hezbollah, which is part of Prime Minister Saad Hariri's government, has urged the cabinet to remain firm with respect to the country's ambitious oil and gas exploration plans. Hezbollah has threatened Israel with retaliation if it goes ahead with exploration work in the disputed area.

The Total chief declined to comment on whether he was optimistic over gas discovery offshore of Lebanon, even though some estimates project the country's territorial waters may hold as much as 96 trillion cubic feet of natural gas and 850 million barrels of oil. While that potential may invariably be a game changer for Lebanon, analysts say it's premature to factor in when exploration hasn't yet been carried out.

"Unfortunately, some of our politicians have already claimed publicly that Lebanon has joined the club of oil and gas producers, and some institutions are already claiming that we are going to generate in $200 billion [Dh735bn] to $300bn in oil and gas revenues," said Nassib Ghobril, chief economist at Byblos Bank.

"This is very risky and irresponsible in my opinion. We need concrete evidence that we have enough commercial quantities and then it takes 10 years if everything goes according to plan to start seeing any revenues... As a government we should prioritise reforms, reduce the fiscal deficit, reduce our borrowing needs and not count at all on oil and gas revenue in the foreseeable future until we start seeing concrete results."

The International Monetary Fund warned last month that Lebanon’s debt-to-GDP ratio could reach 180 per cent by 2023 if the government does not undertake reforms to narrow its fiscal deficit, which may reach 10 per cent of GDP amid the current geopolitical tensions. Lebanon hopes to raise $16bn from a donor conference in Paris next month to help it tame its public debt.

Mr Ghobril cautioned against over-expectation, noting that Total and Eni carried out exploration on one block offshore Cyprus but did not discover sufficient commercial quantities.

"That is a scenario that is very plausible. We just do not know and that’s why exploration exists," he said.

Lebanese hopes of energy independence were revived last year after the formation of a new government in 2016, following the election of Michel Aoun as president and Mr Hariri as premier. The country was without a president for about two years due to political bickering. A compromise brought an end to the vacuum.

In January, the energy ministry passed two decrees to start a stalled tender process for nine offshore blocks. The cabinet passed the much-awaited petroleum tax law in September, just ahead of the October deadline for companies to form consortia of three to submit bids.

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