Feature story: Lebanon's production ambitions
The Levantine country is striving to transition from its position of being an importer of fossil fuels to become a key oil and gas producer, by embarking on an ambitious campaign of exploring its seemingly significant offshore and onshore reserves.
Prospecting for oil is a dynamic art. The greatest single element in all prospecting – past, present and future – is the man willing to take a chance,” Everette Lee DeGolyer, a prominent American oilman, geophysicist and philanthropist once said.
For more than 15 years now, documented news about Lebanon sitting on an offshore wealth of oil and gas resources has attracted multinationals towards the sector. Huge investments in this sector promise to create a new resource for oil and gas through the development of large-scale drilling and extraction projects.
Seismic studies conducted by British Spectrum Company and Norwegian survey company PGS (Petroleum Geo-Services) in Lebanese territorial waters in 2002 and 2006 respectively indicated the presence of gas and oil deposits. The seismic data showed that offshore, Lebanon has a favourable petroleum geology including source rock, reservoir and seal development. Water depths in the region could reach more than 2,000 meters.
On the other hand, in 2010 the US Geological Survey estimated that the whole of the Levant Basin contains around 1.7bn barrels of recoverable oil and 122tn cubic feet of recoverable gas. Subsequent 2D/3D surveys have consistently confirmed that there are significant oil and gas resources offshore Lebanon.
The Lebanese government in 2010 approved the Offshore Petroleum Resources Law 2010/32 to administer the country’s oil and gas wealth, but exploration is still waiting for political consensus. To date, there are no wells drilled in the area offshore Lebanon.
However, seven wells were drilled onshore in the 1950s and 60s. These exploration attempts didn’t penetrate the required depth, however. The seismic survey was not formed then, but experts note that even the old method of drilling utilised at that time was not used correctly and probably not in the right places.
According to figures provided by the Ministry of Energy and Water (MoEW) and based on the Spectrum and PGS estimates, 10% of surveyed Lebanese waters show 30tn cubic feet of gas and 660mn barrels of liquid oil.
“However, optimism should be balanced with a degree of caution. Lebanese citizens and politicians need to be aware that the exact amount of oil and gas in our waters will not be known for sure until exploration and drilling start,” says George Sassine, an energy and public policy expert from Harvard University. “Israel started drilling and did find large deposits, but contrary to expectations they drilled dry holes in two offshore sites where they were expecting to find natural gas,” he adds.
The Offshore Petroleum Resources Law 2010/32 was ratified by the Lebanese Parliament in January 2011. “In terms of legal framework this law is applicable for offshore discoveries and explorations. Moreover, this law is supplemented by 28 governmental decrees for the detailed implementation of the law,” says lawyer Malek Takieddine, an oil and gas consultant.
On April 18, 2013, the MoEW announced that Lebanon had selected 46 international oil companies to bid to explore for gas in its Mediterranean waters. The Ministry said 12 of the companies had been selected to bid as operators and the other 34 could bid as non-operators in the licensing round.
The dozen companies that were pre-qualified to bid as operators were: Anadarko Petroleum Corp, Chevron Corp, ENI, ExxonMobil, INPEX, Maersk, Petrobras, Petronas, Repsol, Shell, Statoil and Total. The licensing and bidding phase was expected to take a year to complete. Contracts were expected to be signed with winning international oil companies in February 2014, but everything was put on hold due to political skirmishes.
The development phase was expected to take its course this year and the first commercially extracted oil and gas was expected between 2018 and 2020. All these have stalled now, although discussions about the bidding phase have resurfaced.
The exploration and the extraction contract, which would decide the shares of revenues for each party, has not been disclosed as yet. “According to experts, exploration is very costly, so the winning companies have to form consortiums, a condition that is mentioned in the law, and they expect a good share of the return from the revenues in the future,” says Nassib Ghobril, head of economic research and analysis at Byblos Bank. The estimated cost of exploration is $100mn per well.
There are 10 blocks and each block will be given to a consortium of companies, says a reliable source at the MoEW, who preferred to remain anonymous.
Scientists say that no-one can give accurate estimates before exploration takes place. Even during the initial stages of exploration, figures might not be reliable. Surveys give an idea but not true figures, but sources at the MoEW believe that they are so promising that multinationals wanted to get involved in the explorations. Estimates show 600tn cubic metres of gas but, before exploration, no-one can tell how much would be extracted.
But as scientists expressed cautious optimism, economists seemed to be even less confident.
“When it comes to the oil and gas, we should keep our expectations low,” says Ghobril. “The geological surveys talk about technically recoverable estimates and they don’t talk about economically recoverable reserves,” he explains. “We are at the beginning of a long process,” he continues. “The question is how much time we need to start the exploration. There’s a process to take its course. I believe it will take at least seven years to start extracting for commercial use in the best case scenario. Ten years is more realistic.”
Sassine says: “Lebanon will get a share of oil and gas revenues per the commercial agreement it reaches with international oil companies. These revenues will depend on four key factors.”
He elaborates: “The first one is the volume of oil and gas that can be economically extracted and produced. While seismic studies indicate that Lebanon could potentially have large petroleum reserves, the only way to confirm is to restart exploration. The second factor is Lebanon’s ability to monetise the oil and gas it produces. This will require proper planning and efficient building and operation of LNG facilities, as well as a coherent oil and gas export strategy. The third factor is global and regional oil and gas prices. The changes in commodity prices will impact Lebanon’s oil export strategy. Then the fourth factor is ensuring that these revenues are not siphoned away. This is a serious issue in Nigeria and Iraq, for example, where 40 to 50% of the total oil produced is illegally smuggled and traded on the black market. This is easy to do when extraction figures are not monitored and disclosed, and citizens are not aware of fraud. Strong transparency measures will be required to guarantee that our future oil and gas revenues are fully accounted for.”
The onshore scene
Between the 1940s and the mid-1950s, a total of seven wells were dug in the regions of Qa’a (east Lebanon), Tal-Zanoub (Mount Lebanon), Sohmor, Yohmor, Adloun (South Lebanon), Abreen and Terbel (North Lebanon). The attempts hinted at oil evidence, although it failed to fully materialise.
In October 2011, Lebanon’s Council of Ministers approved the start of onshore oil exploration in the country, as it authorised the launch of a tender process to survey the Lebanese territory and locate areas with potential oil deposits. It also recommended the preparation of a draft law that regulates oil exploration on Lebanese soil.
According to the MoEW, seismic surveys of Lebanese territories have already started and are being conducted by Spectrum. The British company, in co-operation with the Ministry, has drawn lines to be surveyed in the north, the Chouf area and the south, covering areas from the shore towards deep into the Bekaa Valley, passing through mountainous areas.
“This is not an easy task,” says the Ministry source. “We have so many obstacles to overcome apart from the natural complications. We have to obtain municipality permits, permission from private landlords, some residents could refuse, and so on,” he adds.
Two types of seismic surveys are applied. A seismic vibrator mounted on a truck injects low-frequency vibrations into the earth. It is one of a number of seismic sources used in reflection seismology. Dynamite can also be used as seismic energy to perform both reflection and refraction seismic surveys, especially in the mountainous areas.
Small dynamite explosions in two- to three-metre deep holes can provide single pulses or continuous sweeps of energy. Both types of seismic sources generate seismic waves, which travel through a medium such as water or layers of rocks. Some of the waves then reflect and refract and are recorded by receivers, such as geophones or hydrophones.
Onshore seismic surveys tend to be large entities, requiring heavy equipment and employing many people, deployed over vast areas for many months. A land seismic survey requires substantial logistical support.
Explorations could transform Lebanon into an exporter of natural gas, fetching significant benefits for a country with one of the highest debt rates in the world. Lebanon could access more reliable electricity supplies, improve its public finances, trade balance, and its GDP. The production of gas would eventually lead Lebanon to energy independence, which would transform the country’s fiscal and economic dynamics.
“If the estimates are real, in the scenario where we can extract gas and get the revenues, the benefits will be enormous. The outlook of the economy will be completely changed,” says Ghobril. “We will stop importing our energy needs, which will reduce the balance of payment benefits, reduce the public debt, increase foreign currency reserves. We will have money for public expenditure and construct infrastructure for household gas usage, but unfortunately the oil and gas business is not a very labour-intensive sector. It is more of a capital-intensive sector.”