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Lebanon's energy sector relieved at government formation

With a new cabinet in place, offshore operators will feel more comfortable and a new bid round can proceed

It took nine months to put together and the result does not please every faction in Lebanon's complex political mosaic, but the country at last has a government – including a new energy minister, Nada Boustani.

Boustani is no stranger to the job: she has worked in the ministry since 2010 and was most recently an adviser to the previous incumbent. She is also well known to foreign investors in Lebanon's energy sector. One of her first tasks will be to assure the consortium, which was awarded licences for two offshore blocks in late 2017, that the country can now look forward to a period of relative political stability.

The consortium, consisting of Eni and Total (each with a 40% share), along with Novatek (20%), are planning to start drilling in Block 4 later this year. While the day when any hydrocarbons are brought ashore is far off, the operators will feel more comfortable about their investment if political calm prevails sooner rather than later.

Block 4 lies off the Lebanese coast north of the capital, Beirut. But the other licence, Block 9, is to the south, abutting Israeli waters. The two countries, which have no diplomatic ties, dispute the maritime border. Israel has urged the consortium to refrain from drilling until the matter is resolved. But the operators insist that, when the time comes, the target area will be well to the north of the disputed waters.

A second bid round was scheduled for 2018, but was delayed because of the political wrangling that accompanied efforts to form a government. The expectation is that round will proceed before the end of 2019.

Uphill struggle

While the discovery of hydrocarbons offshore Lebanon would provide a boost to future economic prospects, the new government's immediate focus will be on a host of current economic problems, and early success is by no means assured. Consultancy Capital Economics, in a 7 February report, said the emergence of the new government had "raised investors' hopes that the dire public finances will be put on a stable footing. But we think that these will be disappointed".

Source: Petroleum Economist

The hope is that, with a cabinet in place, some $11bn of loans and grants pledged to Lebanon at an international conference last year will be unlocked. Another positive development would be if the formation of the new government unlocked $11bn of loans and grants pledged to Lebanon at an international conference. This, Capital Economics says, "would shore up the fragile balance of payments position and ease pressure on the dollar peg".


Both Saudi Arabia and Qatar have recently pledged to help Lebanon financially. But Saudi Arabia in particular will be concerned to see that the Iranian-backed Shia group, Hizbollah, has acquired a stronger role than before in government. This, Capital Economics says, "raises the risk that the likes of Saudi Arabia row back on previous commitments, potentially putting renewed pressure on the balance of payments position".

 

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