June’s BLBG meeting had a different format from the usual. A panel of three comprising David Friedman, Oil & Gas industry (O&G) analyst, Niazi Kabalan, International projects lawyer specialising in O&G and Nick Wilson OG analyst discussed the geology, politics and practicality of Lebanon’s potential fields. All lived up to their billing of experts in their field. Questions and answered flowed for a good hour before the panelists were allowed their well-earned trip to the bar. The following is my memory of what was said, any errors and omissions are mine not theirs.
The first message was clear - the fields are potential ones. Until drilling starts
and some hydrocarbons found and analysed there is hope, there are probabilities
and there is, well, potential. Whatever the papers and the politicians say,
discovery is still in the future and thus not yet assured; riches can only
follow discovery. OK, then when does drilling start?
The area of the Mediterranean that is Lebanon’s has been
divided into 10 zones. Leading Oil companies around the world have been invited
to submit documents showing why they should be considered for test drilling.
Once that process of review, known as pre-qualification has been completed,
there will be a short list of companies (albeit fairly long) who will then be
asked to bid for the zones. There will be winners (and of course losers) in
that process, one for each zone. Each zone winner then starts the agreed
drilling and we wait for the screams of joy. Now it needs to be remembered that
the seabed is one and half kilometres below the surface. The potential fields
are some six kilometres below that, getting there is difficult and that means
expensive; estimates are currently around $40 million per well and each zone
could have ten or more test wells drilled. That translates into finding
companies willing to risk half a billion dollars for, at worst, nothing. And if
there is something, that’s not without risk either as BP found in the Bay of
Mexico.
The good news is that there’s no shortage of companies
trying to make the short list. Lebanon is seen by many as more attractive than
Israel (no-one wants to upset the Arab world where there’s a lot more already
discovered Oil and Gas), Cyprus (no-one wants to upset Turkey), Egypt (prices
are capped at a very low level) or Syria (for obvious reasons). The not-so-good
news is that until Lebanon has a fully-fledged, as distinct from caretaker,
government there is no power to sign the contract engaging the winners nor, for
that matter, is there a power in place to even decree how the bid process will
work. There is a Lebanese O&G
advisory board, which in turn has a staff of professional advisors, with
responsibility to draw up recommendations of who and how and what the contracts
might look like, but the advisory board needs someone to advise. The hope is
that the bidding process will complete before the end of this year. Watch this
space. And hope. Because as soon as the drilling starts, even if nothing is
ever found, some of that investment money will flow into Lebanon for
engineering, travel, catering and all other the various support functions that
will be needed.
How much might be out there? The top estimate is thirty
trillion cubic feet of methane. That translates, at current prices to paying
off Lebanon’s debt and having perhaps twenty-five thousand per head to invest.
That sum may go even higher if the gas is what’s known as “wet”, i.e. has
butane, propane or even oil fractions mixed in with it. However, the finds so far
in Israel and Cyprus are “dry”. While that number is not in the same league as
the millions that Qatarians expect, the Lebanese are twenty times more numerous
and the Qatari reserves so far found are, perhaps, thirty times bigger. But
there’d be more enough to sort out the travel, electricity and water issues
facing this country.
So what does this net out to? Lebanon has to sort out a
government and then implement the already decided approach (which is to follow
the Norwegian model). Then the gas has to be found. It won’t make the Lebanese
rich, but it could dramatically improve the infrastructure of the country.
Watch this space. And hope.
