• Home
• News Article

Lebanon to press ahead with oil exploration

11 May 2006

BEIRUT: Lebanese Energy Minister Mohammad Fneish will push forward with plans to conduct a 3-D seismic survey of the country's potential off-shore hydrocarbon reserves after receiving the green light from Cabinet on May 2. In an exclusive interview with The Daily Star, ministry representative Ali Berro, revealed that Fneish will sign an acquisition agreement to conduct a multi-client, non-exclusive seismic survey with energy service company PGS.

The move is a welcome sign of progress for Lebanon's energy sector, whose development has been consistently undermined by political tensions, and could potentially alleviate the government's financial burden by reducing or outright canceling its subsidy to EDL, estimated to cost the government $1 billion annually.

According to Fawaz Mourad, a PGS representative for Lebanon, the 3-D study is a necessary precondition for foreign investors to begin oil exploration and for the country to curb its reliance on imported fuel to meet its annual energy consumption requirements.

"A country like Lebanon needs 3-D surveys [of potential off-shore reserves] to give information to international oil companies," he said.

"PGS will finance acquisition and processing, [which could otherwise cost the government up to $15 million] and sell data to foreign companies at a reduced rate, which will increase competition before the bid-round."

Both Mouraud and Berro declined to speculate about the income Lebanon might generate from exploiting its prospective energy reserves, since it is not possible to determine the exact nature or quantities of resources before drilling.

"There are indications of under-sea gas reserves from previous studies to justify exploration, but oil is more difficult to detect from a seismic study," said Mouraud.

Data collected from at least three earlier 2-D seismic studies - conducted by firms Geopracala, Spectrum, and TGS - confirmed that Lebanon's shore is petroliferous.

PGS hopes to begin data collection within the next three months when an acquisition vessel "arrives at Lebanon's shores." If the results support the previous reports, Mouraud expects the bid round to begin by early 2007, when the study is available for purchase.

"The state could get signature bonuses from prospective exploration companies, then if they begin commercial drilling, the proceeds could be hundreds of millions, if not more," he said.

If all goes according to plan, commercial drilling could start by end of 2007 and developing commercial discovery would take two years.

But many Lebanese oil experts are dubious about such an optimistic timeline, and some say Fneish might be putting the cart before the horse, since there is no legal framework in place to protect the investments of international exploration and drilling companies.

"The ministry has been working on an energy law for years, since 2002 I think," said Pierre el-Khoury an energy engineer at the UNDP.

"But the law that exists needs a lot of work, so I don't think they will be able to meet their deadline, and if there is no legislation, you can be sure no foreign company will invest."

But Berro says that a petroleum law is irrelevant to the agreement with PGS, since many countries have gone forward with exploration in the absence of a legal framework due to "certain obstacles."

"Every concession and license is a law in itself. Egypt negotiates every contract individually since its Parliament has not approved petroleum legislation. Besides, we need a new law whether the seismic study yields positive results or not."

Nevertheless, Berro says the ministry is working on drafting a petroleum law with "many international consultants and help from the World Bank" in parallel with the PGS seismic study and aims to complete them at the same time.

"What is really important is the petroleum law, because the bid-round won't take place without it," said Mouraud, but maintained that if the ministry waited until legislation was in place to sign an acquisition agreement, they would have access to a vessel for one-and-a half years due to a global shortage of exploration equipment in today's market.

Optimistic or not, experts agree that the need to curb Lebanon's dependence on imported fuel is more urgent than ever as the government deficit continues to mushroom in the face of sky-rocketing oil prices. To this end, the ministry under Fneish has negotiated a slew of cooperation agreements including the Arab Gas pipeline agreement with Egyptians to import gas directly to Beddawi power plant with neighboring countries to increase the capacity of the energy sector oil reserves or not.

"They have a really good team of experienced engineers, they are clean, not corrupt. They're just a little overly optimistic, but the optimism is probably based on serious work that they haven't made public yet," said Khoury.