Lebanon to struggle to replicate Israeli success
Israel's clustering approach resulted in the majority of blocks being awarded but the neighbouring Lebanese auction faces tougher challenges
Israel's energy ministry awarded 12 blocks at the end of July, an encouraging return from the 19 blocks offered in its second ever offshore licensing round that closed earlier that month. But while it was an improvement on previous Eastern Mediterranean upstream auctions, it may not be entirely representative of what we can expect from future rounds.
In an attempt to learn lessons from its maiden auction in 2017—when only two bidders applied for, and were awarded, six of the 24 available blocks—Israel structured the offer to incentivise the acquisition of multiple contiguous blocks, located in the south and centre of its economic exclusion zone (EEZ).
In terms of the numbers participating, the strategy failed. Only two consortia choose to participate—a disappointment exacerbated by media reports that ExxonMobil and Petrobras had been considering bids. However, the clustering approach had the intended effect, with the result that most of the tendered blocks were apportioned.
A consortium led by Greece's Energean, along with local producer Israel Opportunity Energy Resources, acquired Cluster D, comprising four 400km² (154m²) blocks in the central EEZ. Energean is already Israel's third-largest operator; it is developing the northern Karish and Tanin fields and acquired five additional licenses in the first bid round. Further expansion outside the company's existing area of operations, buttresses the government's claims of good prospectivity across the EEZ.
Energean says that a prospect has been identified in the new acreage analogous to the known Tamar Sands fields, which include Karish as well as the giant Tamar and Leviathan fields managed by US producer Noble Energy and Israel's Delek Drilling.
For aspiring producers, current options are limited
Clusters A and C, each likewise comprising four 400km² blocks, were awarded to a joint venture of UK headquartered Cairn Energy and Soco International and Israel's Ratio Oil. Cairn has previously focused on Africa, the Americas and the North Sea, and, before that, South Asia. Soco made its MENA debut in April with the acquisition of Egypt-focused Merlon International and thereby of a producing concession in Egypt's Western Desert. Ratio has been a presence since the birth of Israel's offshore gas industry and was responsible for the discovery of the estimated 22.4tn ft³ Leviathan field in 2010. The company also owns the Royee licence, adjacent to Cluster C.
The key deterrents to wider participation remain those that afflicted the first bid round; most importantly, the lack of export outlets should fresh gas be unearthed. The domestic market, while expanding rapidly, is limited, currently served by Tamar production and due to be a significant recipient of Energean's Karish/Tanin development. Noble and Delek have pursued independent export solutions for Tamar and Leviathan, such as pipelines to Jordan and Egypt and potentially LNG facilities, but with only limited success.
For aspiring producers, current options are limited. The Israeli government trumpets the unbuilt East Med gas pipeline—a proposed 2,200km (1,367m) link from Israel to southern Europe. But the political, financial and technical challenges entailed are so enormous that uncertainty surrounds its future.
Source: Petroleum Economist
Lebanon, a smaller market with no current gas production, faces even steeper obstacles in attracting interest in its offshore acreage, not least the overlap of the three of its 10 blocks with territory disputed with Israel. Like its neighbour, Lebanon elicited a weak response to the much-delayed debut bid round in 2017, with a sole bidder making offers for only two of the blocks.
However, the disappointment was mitigated by the calibre of the winning consortium, comprising Total, Italy's Eni and Russia's Novatek, and its willingness to drill in one of three contentious blocks, Block 9. The latest five-block auction, due to close on 31 January 2020, could be even more inflammatory; it includes the remaining blocks contested with Israel, two northern blocks infringing on waters disputed with Syria and a final licence area bordering Cypriot waters.
Furthermore, no export routes currently exist, with marketing focused on pent-up domestic demand. Nonetheless, energy minister Nada Boustani insists that interest is strong, adding that firms studying the acreage include BP and Russia's Gazprom and Lukoil, as well as the incumbent consortium.
Source: Petroleum Economist