Some Cold Water on the Hot Topic of Lebanon’s Gas and Oil Future
A lot has been written in the Lebanese media about the prospects for future oil and gas discoveries both on and off-shore, leading to speculation about how unproved discoveries would somehow solve the country’s fiscal woes. While voices are being raised to calm the optimism, noting the major hurdle of start-up requirements for moving ahead with exploration and production (E&P), it is worth looking at the future scenario within both the political and economic contexts.
The Oil and Gas Bulletin, a well-respected industry voice, noted in a recent article that Lebanon has several key obstacles that keep it from moving forward to build a new energy sector. “Lebanon does not seem to be ready — in terms of legislation, basic infrastructure, or skilled labor — to enter into the world of oil and gas. The country does not have its own national petroleum company or other structures needed to enter the energy market. It also doesn’t have a national sovereign fund in order to invest in the gas. The nature of Lebanon’s fragmented political system and its lack of accountability present further challenges.”
Given that the potential finds are located in the Shia-dominated south must also be taken into consideration so that there is a reasonable agreement on revenue and job-sharing in advance of moving forward. An article published by the Washington Institute for Near East Policy (WINEP) detailed allegations of corruption within the ranks of Hezbollah that may portend problems ahead.
There are already complaints from some quarters that the initial agreements are favorable to the companies while “Companies say they have better terms in other nearby locations.”
The nitty-gritty details of the political context were well described in an En-Nahhar.com feature that is worth a read for its insights into the origins of the dispute with Israel over the Blue Line border demarcation and the role of Cyprus in the current disagreements.
At the core of the problem is that Lebanon and Israel have no formal diplomatic relations. Even the meetings every four-to-six weeks in Naquora are mediated by UNIFIL. However, if both parties heed international law on this issue, there are provisions, procedures, legal standards, and mechanisms under the UN that can lead to a resolution…if they are followed.
In looking at the benefits to Lebanon, the article mentions that “The national fuel bill would fall substantially, and the state-run Electricité du Liban (EDL) would be able to run some of its generating plants on gas, for which they were designed, rather than the more polluting, more expensive, and less efficient diesel they currently use. Shortly thereafter, Lebanon’s improved economic prospects – and the reduction in political risks – would lower the cost of credit and make it cheaper to repay its large debt. Eventually, some of the gas produced could even be exported, providing the Lebanese government with new revenues which, if properly managed and invested, could help fight poverty, improve education and infrastructure, and spark a historic socioeconomic rebirth.”
Two key instruments that apply are under the terms of Customary International Law (CIL) as set out in the United Nations Convention on the Law of the Sea (UNCLOS). Unfortunately, in its rush to reach an agreement with Israel on its common maritime border, Cyprus “breached the express term in its agreement with Lebanon which required it ‘to notify and consult’ Lebanon in case negotiations aimed at the delimitation of its Exclusive Economic Zone (EEZ) with a ‘third country’ concerned the demarcation points agreed with Lebanon. Moreover, by doing so, both Cyprus and Israel breached their obligations under UNCLOS and CIL, respectively, to refrain from actions that might prejudice Lebanon’s interests.”
Lebanon never ratified its EEZ agreement with Cyprus and “Arbitration under UNCLOS against Cyprus might be seen as undermining relations with a friendly government.” Israel is not a party to UNCLOS and Lebanon has few options for a third party mechanism to arbitrate this breach of its rights. The discussion over the Blue Line has been tied up for months, both with regard to the land border disputes and the starting point for demarcating the maritime border. The total water area is less than 350 square miles. US-led efforts have failed to resolve the starting-point issue as its solution relies on reference maps that Lebanese officials say lack the detailed scale required.
The article claims that “For both sides, then, the best way forward is clearly the same: to get rid of the obstacles as quickly and as painlessly as possible, and then get down to business. Since this is a win-win situation, reaching an agreement would be relatively straightforward if we were talking about countries in other parts of the world. We are, however, talking about Lebanon and Israel and the region that surrounds them. And that makes reaching an agreement much more complicated.”
Yet, there is a way forward with “The active support and participation of the United States, the UN, and the international community in general, and if the parties are patient, there is a very real chance of success. Significantly, too, as members of the United Nations, both countries have shared obligations under the UN Charter to settle their disputes peacefully and to refrain from the threat or use of force.”
As the mediated dialogues at Naquora demonstrate, with political will on both sides, a peaceful solution is possible. Delay only raises the political risks associated with the project and may even lead to the targeting of E&P efforts by terrorists or militants from both sides. Since there are a number of models (including Saudi Arabia and Kuwait) for how areas claim by two countries can be developed under various scenarios, the key decisions reflect larger political considerations. Can Lebanon deal with a country that it doesn’t recognize? And will Israel recognize the value of treating Lebanon as a sovereign country with internationally recognized borders? Timing is critical as opportunities are growing elsewhere.