By the Waters of Lebanon
It was bound to happen. After years of counter-claims between Lebanon and Israel over offshore oil and natural gas deposits, the matter finally erupted. Last week, Lebanon signed a development agreement that includes a zone also claimed by Israel.
Given the Hezbollah influence over the Lebanese government and the prospect that the land border between the two countries could easily once again become a line of open hostility, what occurs just offshore can quickly escalate into more than a dispute over hydrocarbons.
Matters intensified over the weekend when Hezbollah leader Hassan Nasrallah threatened to target offshore Israeli platforms and drilling installations. The targets were dramatically pictured beneath crosshairs in a released Hezbollah video.
The disagreement is hardly new. The corridor moving northwest from the Israeli-Lebanese border into Cypriot waters has been known to contain substantial oil and gas for some time. Major subsea reserves have been discovered in the area since 2009.
Previously, Israel’s Tamar and Leviathan offshore fields had been the big news. Tamar is in operation and is currently the country’s main source of domestically-produced natural gas. Leviathan is expected to come online next year. Israeli Delek Holdings, its subsidiaries, and American company Noble Energy operate the fields.
Both will be emphasizing exports, an issue that has generated criticism from some Israelis who prioritize national energy security. The announcement Monday of an agreement with private Egyptian Dolphinus Holdings will only exacerbate the disagreement. That contract calls for shipments of 64 billion cubic meters (2.2 trillion cubic feet) of gas from both Tamar and Leviathan over ten years, valued at $15 billion.
But the decision by Lebanon to begin development of the so-called Block 9 has ratcheted up both the rhetoric and the strategic reaction. The block includes maritime territory claimed by both countries, still technically at war since the 2006 Israeli invasion of Lebanon.
Israel has begun providing naval protective support to its drilling and production platforms. It has also ordered four new combat vessels from Germany specifically for use in defense of offshore operations.
For its part, Lebanon has remained defiant. President Michel ‘Aoun has repeatedly condemned the Israeli threats on Block 9, vowing to defend the country’s territorial waters. More importantly, Hezbollah has made it a central issue, and unlike the Lebanese Army, has displayed a willingness to act on its rhetoric in the past.
Late in January, Israeli Defense Minister Avigdor Lieberman said that Lebanon’s announcement of a tender “on the gas field, including Block 9, which is ours by any definition,” constituted “very, very challenging and provocative conduct.”
In all, Lebanon has ten offshore developmental blocks. The tender under contention for two of the Lebanese blocks was won by a consortium of French Total, Italian, ENI, and Russia Novatek with the contract signed on January 29.
Unlike off Israel and Cyprus, Lebanese waters have yet to have any test drillings. That means, while the geological basin may carry much promise and some seismic results can be extrapolated, no resources have yet been documented. That requires an initial phase of exploration.
Exploring for Hot Water
The first exploratory well will be drilled on Block 4 in 2019, according to Stephane Michel, Total’s head of exploration and production in the Middle Eastern and North African exploration and production. The second well will be drilled in Block 9 more than 25 kilometers (15 miles) from the maritime border claimed by Israel, he said at the ceremony. “There is no reason not to proceed in this way,” Michel added.
Several sources at Total confirmed to me over the weekend that the consortium will steer well clear of Israeli waters, although Lieberman has stated publicly in the past that wide areas of the Lebanese Block 9 (as well as Block 8 and Block 10) are inside waters claimed as Israeli territory.
Of course, as one contact reminded me, “until drilling indicates the genuine presence of sufficient commercial resources, all of the hoopla may be for nothing.” In turn, the commercial viability of potential reserves will in large measure be determined by market prices, adequately securing long-term end users customers, and the ability to build the necessary export infrastructure.
As with the bubbling political question in Israel, developing offshore reserves only to export the product may cause its own domestic problems for the Lebanese government. In addition, the extensive cost of setting up export facilities may also be difficult to sell in a nation strapped for cash.
Market sources indicate that the usual way to resolve counter-claims for offshore resources is to finalize a territorial boundary and then enter into a joint development agreement on what remains contested.
For example, this is what we did several years ago during the (still) ongoing dispute over demarcating the Caspian basin. After some prolonged negotiations, it became apparent that an agreement could be arrived at among the five littoral states. Iran and Turkmenistan have consistently rejected any decision not providing exact 20% national maritime areas which included control over the surface waters.
The other three parties – Russia, Kazakhstan, and Azerbaijan – accepted the recommendation made by international advisors to divide the northern Caspian according to standard median lines from national coastlines to demarcate the seabed. However, the accord also keeps the surface open to free shipping usage by all five. Any development of sea floor deposits that cross national territory would be via joint operations of the countries involved.
Three separate bilateral agreements were entered into to effect the arrangement.
In the Caspian, Iran and Turkmenistan have still not entered into any formal arrangement with Russia, Kazakhstan, and Azerbaijan. But the northern three have been developing their sections of the Caspian now for some time, with several joint venture operating areas where the deposit includes territory of two of the countries.
Depending on how one reads the map in the Lebanese-Israeli disagreement, most of the offshore deposits are not contested. That would seem to mean the “Caspian” model might work. After all, it already has been introduced to resolve development issues between Israel and Cyprus.
Unfortunately, with Lebanon and Israel still officially at war and adversaries like Hezbollah hardly ready to accept any negotiated joint resolution, events offshore of the two countries are only likely to increase tension levels.