Lebanon's Offshore Auction Proceeds Despite Gaza War
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The war in Gaza and skirmishes at the Lebanese border are unlikely to impact investor interest in the country's offshore oil and gas potential, a source familiar with the matter told Energy Intelligence.
Heightened tensions at the Lebanese border with Israel have raised fears of Lebanon being drawn into a wider war in the region.
That could have dramatic repercussions for the country, which is already enduring its worst economic crisis since independence.
The Lebanese government wrapped up the country's second licensing round in early October, less than a week before the war broke out in Gaza.
It announced that the consortium currently operating offshore Block 9 had placed bidsfor Blocks 10 and 8.
Blocks 8, 9 and 10 are all located along Lebanon's maritime border with Israel, which is already producing gas from the Leviathan, Tamar and Karish fields on its side of the border.
TotalEnergies operates Block 9 with a 35% stake alongside Eni (35%) and QatarEnergy (30%).
A maritime border agreement signed by Lebanon and Israel last year paved the way for Total to start exploration drilling at the Qana prospect in Block 9 earlier this year.
It also enabled Beirut to proceed with its second licensing round.
Fragile Economy
Revenues from oil and gas discoveries in the Mediterranean would be a boon for Lebanon.
The country defaulted on about $31 billion of eurobonds in 2020, with its banking system going into freefall, its currency losing more than 98% of its value and inflation averaging 171.2% in 2022.
The World Bank estimates that Lebanon's economy has contracted 39.9% since 2018. Its public debt was nearly $104 billion at the end of August.
The war in Gaza has led to increased uncertainty and fears of a wider regional conflict. It has also raised questions as to whether foreign companies might withdraw their bids for oil and gas blocks.
"It's business as usual," the source said, acknowledging that while geopolitics will still play a role, the companies — Total, Eni and QatarEnergy — are standing by their commitment after placing the bids.
Beirut has seven weeks to decide whether the blocks that drew bids will be awarded or not.
"We are still negotiating the commercial offer on Blocks 8 and 10 ... We need to negotiate the technical and commercial offers, and a decision will be taken by the end of the year," the source said.
One factor that might dampen investor appetite is the lack of exploration success for the Total-led consortium in Block 9.
No Discoveries
Lebanon announced preliminary results for Block 9 last month, indicating that the first well failed to produce a commercial discovery, although "positive data" was obtained.
The source said Total has until May 2025 to assess data collected from the well, send a report to the Lebanese Petroleum Administration and decide whether it wants to conduct further exploration or relinquish Block 9.
The Total-led consortium was awarded Block 9, along with Block 4 off the northern Lebanese coast, in the country's first licensing round in 2018.
The first exploration well drilled offshore Lebanon, on Block 4 in 2020, also failed to yield a commercial discovery. The consortium relinquished that block last month when the license expired.
Block 9's proximity to Israeli offshore discoveries, including the 1 trillion cubic feet Karish gas field, had raised hopes for a potential discovery.
Third Auction
A third licensing round offering all of Lebanon's remaining blocks is likely to follow after the results of the second round are announced. "We need to keep up the tempo for exploration," the source said.
Investment sentiment toward Lebanon may have taken a hit from the Block 9 results and because of the risk of a wider war.
But the source who spoke to Energy Intelligence dismissed the idea that a broader regional conflict would erode the interest of potential investors.
"A wider war won't change much. Israel awarded blocks during the war," the source said.