Lebanon eyes Israeli gas to ease energy woes

Reuters/Ari Rabinovitch

Life in Lebanon has to be planned around intermittent electricity and water: when to charge the phone or rise in the middle of the night for a shower, how to keep food preserved and home temperatures bearable, and how to pay for a costly generator.

Smog hovers over the coast when there is occasionally enough fuel oil to run the power plants.

The Lebanese have long hoped that offshore gas could solve their triple energy-economic-environmental crisis. Resolution of the border dispute with Israel gives them a chance – but it’s just the first step.

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Large gas finds have been made offshore in Israel: the Tamar field in 2009, Leviathan in 2010 and Karish in 2013, as well as some smaller discoveries.

Once energy-short Israel is now able to meet its own needs, phase out polluting coal, and export gas to Jordan and Egypt.

But there has been a persistent disagreement over Israel’s northern maritime border, complicated by the fact that there are no diplomatic relations.

This, along with the economic crisis and internal political uncertainty, has hampered gas exploration off Lebanon.

A consortium led by TotalEnergies with Italy’s ENI drilled a well on the more northerly Block 4 in 2020 but it was unsuccessful.

Block 9 includes part of the disputed zone, and the Qana prospect. Qatar, which already takes part in gas exploration nearby in Cyprus, has expressed interest in joining the group, according to caretaker Lebanese energy minister Walid Fayyad.

The border delineation places Karish entirely within Israeli waters. The field, developed by Greek-UK company Energean, is about to start production.

TotalEnergies is expected to drill Qana shortly, with the director of Israel’s energy ministry estimating its value at $3 billion, though it may turn out not to contain commercial quantities of gas at all.

Israel will be entitled to a share of revenues, estimated at about 17 percent, from any discovery, paid by the company operating the field.

The US, and its energy envoy Amos Hochstein, have assiduously mediated this deal.

It has several attractions: easing one point of conflict between Israel and an Arab neighbour, stabilising Lebanon, and perhaps unlocking additional gas resources that could boost regional growth, or be exported to Europe as it rushes to replace Russian gas.

The Lebanese president, prime minister and speaker of parliament, representing the country’s three main confessional groups, believe they can approve the deal without parliament’s formal assent.

Israel’s Yair Lapid, facing an upcoming election, similarly plans to have the Knesset review the agreement but without having the power to approve (or reject) it.

The deal is a good one for cash- and energy-starved Lebanon. It is good for Israel too. It diminishes the threat of Hezbollah attacks on Karish – in July, the IDF shot down several drones approaching the field’s floating production vessel. 

Israel would be happy if Lebanon does find and develop gas, if for no other reason than the cynical one of providing a target in case of renewed war – and hence a deterrent to hostilities.

But concluding the deal and drilling the well may prove to be the easy part. If gas is found, developing it will be the challenge.

In the Israeli figures, Qana does not appear to be particularly large. Bigger fields in Cyprus have lain fallow for up to 11 years as they search for ways to reach markets.

Karish delivers to the Israeli market at a minimum price of $4 per million British thermal units, equivalent to about $24 per barrel of oil.

Engineering costs have risen since then, but gas would still be far more affordable than the diesel and fuel oil Lebanon currently relies on. 

However, even with rapid development, it would take a minimum three to four years after discovery before Qana could start production, so it is no quick solution to the electricity crisis.

The development consortium will need guarantees of payment, not easy from the cash-strapped Lebanese state or its citizens.

The potential market in Lebanon is small, even if converting all the country’s oil-fired power plants to gas and running them at capacity.

There will be the inevitable political debates over where facilities and pipelines should be located, with each party jockeying for a share of spending and assurances that its rivals cannot cut off supplies unilaterally.

Political players are deeply entrenched in the generator market and do not want Électricité du Liban to become a reliable supplier.

The same problems bedevilled attempts to set up a floating liquefied natural gas (LNG) terminal between 2002 and 2019, with the country requiring three sites so that all parties could receive a suitable cut.

So Qana may have more than enough gas to saturate the domestic market, but not enough to underpin an export scheme. Perhaps success there would encourage exploration further north. 

Otherwise, Beirut would have to cooperate with Nicosia and Cairo – presumably, not with Jerusalem – on some shared export scheme, raising complexity and risks.

The Lebanese should be happy that this deal has been struck – lowering the risk of another damaging confrontation with their southern neighbour. With some geological luck, gas could ease disastrous energy shortages later this decade. 

But gas exports will not bring in a flood of wealth, as was promised ahead of the first exploration licensing round in 2017.

The drill-bit is no replacement for the hard work of grinding out reform of Lebanon’s failed political system.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis