Hopes rise in Beirut of a deal to end border dispute with Israel

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• Maritime agreement could kick-start oil and gas exploration
• US-brokered proposal has been presented to Lebanon’s president
• Israel discovered vast gas reserves in the Levant basin in 2009

Lebanon appears to be nearing an agreement with Israel over their disputed maritime border, which could kick-start long-delayed oil and gas exploration. 

A deal between the longstanding foes could provide some rare cheer in Lebanon, which is reeling from hyperinflation, the collapse of its banking sector and currency, and soaring unemployment. More than 80 percent of the population has been plunged into poverty. 

In 2009, Israel discovered vast gas reserves in the Levant basin, which also spans Lebanese and Cypriot territory. This boosted hopes that Lebanon too could have sizeable deposits of oil and gas, but little progress has been made – partly because of the border dispute. 

Now US-led negotiations to formalise the maritime border between Lebanon and Israel, which have no official diplomatic relations, appear close to conclusion.

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On Saturday, the US ambassador to Lebanon, Dorothy Shea, presented the proposed agreement to President Michel Aoun, as well as Beirut’s prime minister-designate Najib Mikati and parliamentary speaker Nabih Berri. 

Berri described the proposal as “positive”, Reuters reported. A statement released by his office added that the plan would require further study before Lebanon makes a formal response. 

Various geological surveys conducted between 1993 and 2006 have indicated that Lebanon’s offshore territory has oil and gas deposits. In 2010, its parliament passed an offshore resources petroleum law to govern the fledgling oil and gas exploration and production sector. An industry regulator was established in 2012. 

Lebanon divided its maritime territory into 10 blocks, covering a total area of 21,500 square kilometres. Block sizes range from 1,201 sq km to 2,374 sq km. There is also a buffer zone of 1,200 sq km between the country’s coast and the blocks.

Blocks 8, 9 and 10 form Lebanon’s disputed southern maritime border with Israel.

In 2018, a consortium led by France’s TotalEnergies and including Italy’s Eni, which each own a 40 percent stake, signed exploration and production agreements with Lebanon for blocks 4 and 9.

The third partner in the consortium, Russia’s Novatek, is returning its 20 percent stake to Lebanon’s government, Reuters reported last month. 

Exploration drilling in Block 4, 30km north of Beirut, found traces of gas in 2020, “confirming the presence of a hydrocarbon system, but no reservoirs were encountered”, according to a report by Total.

The French energy giant has yet to start exploration in Block 9, which includes 777 sq km of territory whose ownership is disputed by Israel. 

Waiting ‘for some comfort around the border resolution’

“Eni and TotalEnergies are keen to hold onto their [stakes] and have identified prospects in Block 9,” said Martijn Murphy, principal analyst for Upstream North Africa at consultancy Wood Mackenzie.

“I’d imagine that Eni and TotalEnergies would wait for some comfort around the border resolution before progressing any plans to drill in Block 9.”

Lebanon estimates that its offshore territory could contain as much as 25 trillion cubic feet (707 billion cubic metres, or bcm) of natural gas reserves, although the US Energy Information Administration has pointed out that this figure is speculative. 

“So far, no gas has been discovered offshore Lebanon, but there’s a lot of potential. You don’t have to go very far south until you’re hitting multi-TCF (trillions of cubic feet) discoveries in Israel and further west to fields off Cyprus as well,” said Murphy.

“There’s prospectivity there, certainly in the southern part of Lebanon’s offshore area, it just hasn’t been proven yet.”

While Lebanon has struggled, Israel’s oil and gas industry has flourished since its first offshore discovery in 1999. Production started in 2004, before the 2009 find in the Levantine basin swelled Israel’s estimated gas reserves to 900 billion cubic metres. 

Israeli gas production in the first half of 2022 rose 22 percent to 10.85 billion bcm, with state royalties up 48 percent to 824 million shekels ($232.5m) thanks to rising gas prices and a strong dollar. The partnership operating Israel’s largest gas field paid 752m shekels in royalties and taxes in the first half of 2022. 

These sums have bolstered hopes in Beirut that hydrocarbons could help revive the ailing economy, but analysts have played down expectations of a quick fix. Lebanon has yet to form a permanent government following elections in May, and the parliament only passed its 2022 budget on September 27. 

“If companies were to start exploring next year and were successful in finding gas reserves, then you’d be looking at three to four years after that for production to start if the companies were able to fast-track a development,” said Murphy.

Lebanon is also attempting to sell its eight remaining offshore blocks, having extended the original January 2020 bid deadline several times. The new deadline for submissions is December 15 2022.

“Oil and gas can’t solve our economic problems alone,” said Sibylle Rizk, director of public policies at Kulluna Irada, an NGO lobbying for political reform in Lebanon.

“The key to solving them is governance and changing the political system.”