Block 4: How Disappointed Should We Really Be?

Analysis by Michel Sadek, Staff Writer

August 20th, 2020

Dreams of oil bound riches birthed in Lebanon soon after the discovery of tremendous hydrocarbon fields in the Levantine Basin, particularly offshore Egypt and israel. Following seismic studies, government officials predicted the existence of a 25 trillion cubic feet natural gas reserve in the country’s offshore area. It was a long-awaited beacon of hope, a prospective investor magnet for a country whose debt amounted to 156% of its GDP, the world’s third highest debt-to-GDP ratio. 

In late February 2020, 30 kilometers offshore the Lebanese capital and 1500 meters below the surface of the Mediterranean, the Tungsten Explorer drilling vessel inaugurated a mission many hoped would reinstate stability into the country’s economy. 

Indeed, “dreams of oil bound riches” birthed in Lebanon soon after the discovery of tremendous hydrocarbon fields in the Levantine Basin, particularly offshore Egypt and israel. Following thorough 3D seismic studies, government officials predicted the existence of a 25 trillion cubic feet natural gas reserve in the country’s maritime area. It was a long-awaited beacon of hope, an investor magnet for a country whose debt amounted to 156% of its GDP, the world’s third highest debt-to-GDP ratio. 

By the end of 2017, the Lebanese Petroleum Administration had awarded two exclusive petroleum licenses to a European consortium comprising France’s Total, Italy’s Eni, and Russia’s Novatek. Soon after, in January 2018, the consortium signed Exploration and Production Agreements (EPA) with the Republic to make official the drilling of Blocks 4 and 9, in hopes of uncovering momentous quantities of hydrocarbons. And given the geolocation of Block 9, whereby it included waters disputed with the neighboring israel, it was decided that Block 4 be the first target. After years of uncertainty and delays, Lebanon’s first deep-water drilling mission was made official. 

Lebanon's Block 4  Drilling Site retrieved from https://www.dailystar.com.lb/News/Lebanon-News/2019/May-11/482938-block-4-oil-drilling-to-start-in-december-total-report.ashx

The project took the form of a joint venture between Total, acting as operator and owning a 40% stake, aside to ENI and Novatek, acting as partners and controlling 40% and 20% of the equity, respectively. After conducting appropriate environmental base analyses, Total positioned its drillship in the Oligo-Miocene target section of Block 4 on the 25th of February. Minister of Energy and Water Raymond Ghajar tweeted that the ship had received the logistical and technical support it needed, and the drilling operations were good to go. 

“Today is a happy day for us and all Lebanese,” said Lebanese President Michael Aoun, as per a statement made by his media office. “We hope the dream we’ve all imagined is realized.”

Prime Minister Hassan Diab went on to describe the role of the event in relieving Lebanon of a “crisis that is tightening the noose on the financial and social reality of the Lebanese.”

Indeed, the consortium adopted an ecologically “conservative approach,” targeting the Lower Miocene so as to avoid potential drilling hazards including geological faults.  Hydrocarbon drilling on the prospect lasted around 2 months, covering an area of 50-60 kilometers and digging approximately 2.5 kilometers beneath the seabed, as data was collected from various geological layers in the well in search of hydrocarbon traces. Likewise, operations carried on despite challenges associated with the coronavirus pandemic and national revolt, thanks to the methodical roadmap laid out by Total, in cooperation with Lebanese officials. It is also worth noting that the drilling operations wholly complied with transnational environmental standards, as toxic byproducts of the processes, namely mud-cuttings, were exported to Cyprus for proper disposal. 

Unfortunately, the dreams of the Lebanese were crushed in April, when Minister Ghajar declared that no commercial reservoirs had been found off Lebanon’s coast. While the exploration unearthed small volumes of gas deposits, these were not commercially viable, rather trivial compared to the Egyptian and israeli discoveries. Experts, throughout the month of June, went on to explain that the previously detected levels of hydrocarbons had directed the mission to the Tamar formation, the target of the well, and the negative results were indeed a shock. 

Nonetheless, declaring the mission to be a complete failure would be unjust. 

The data and experience acquired will be invaluable for the future probing of Block 9, set to begin in 2021.  Further studies are currently under way to better understand the results and enhance future exploration strategies. 

“We are satisfied to have drilled the first ever exploration well in the Lebanese offshore domain, according to the initial program,” said Ricardo Darré, Managing Director of Total E&P Liban. “We thank the Ministry of Energy and Water and the Lebanese Petroleum Administration for their invaluable support notably to overcome the challenge resulting from the Covid-19 crisis. Despite the negative result, this well has provided valuable data and learnings that will be integrated into our evaluation of the area.” 

Taking it a step further, this negative result could be a much needed wake-up-call for the Lebanese populace.  

Ever since rumors about the presence of gas spurred across the nation, fake news has been circulating hastily, news that greatly overstates the impact a potential discovery could have on the Lebanese economy. Undeniably, empirical evidence from around the globe shows us that the volatility of oil revenue could negatively impact long-term economic growth. Venezuela, for instance, is an oil powerhouse whose excessive reliance on oil production destroyed the nation’s food security and agricultural sectors. 

Venezuela's Historic Inflation vs. Oil Revenue, retrieved from https://commons.wikimedia.org/wiki/File:Venezuela_historic_inflation_vs._oil_revenue.png

Infamously known as the “Resource Curse,” the mismanagement of natural treasures can completely offset any benefits associated with their use. A rapid increase in oil exports could, for example, inflate the national currency immensely, rendering exports in other sectors utterly uncompetitive. Said nation would be forced to adopt an import-dependent system, which would effectively destroy any chances of lowering the national debt. 

From another perspective, easy oil money and corrupt government officials do not make the greatest combo.  For Interim Director of the UPenn Middle East Center John Ghazvinian, oil-backed money has yet to benefit the average Nigerian citizen. 

“People in the Niger Delta live almost as if it’s the Stone Age… Nearby, you will have these multibillion oil facilities, with executives being dropped in by helicopter.” 

Thus, even if a field really was discovered in Block 4, whether we were actually ready for it is quite arguable. There is a lot to be done in terms of fortifying and diversifying Lebanon’s economy before it can benefit from the discovery of an offshore oil field. The Lebanese populace must considerably manage its expectations, without letting the potential discovery of oil divert efforts from the progression of traditional and agricultural sectors. 

“If Lebanon does not undergo immediate economic and fiscal reforms, then no amount of oil and gas discoveries can save us.” (Diana Kaissy, executive director of the Lebanese Oil and Gas Initiative)

References:

Exploration and Production. (2020, April 29). Retrieved July 31, 2020, from https://www.total-liban. com/en/who-we-are/total-lebanon/exporation-and-production

Total says results of Block 4 drilling will be clear by June. (n.d.). Retrieved July 31, 2020, from https://logi-lebanon.org/KeyIssue/Total-says-results-of-Block-4-drilling-will-be-clear-by-June

Home LPA. (n.d.). Retrieved July 31, 2020, from https://www.lpa.gov.lb/

Total Comes Up Dry on Block 4. (n.d.). Retrieved July 31, 2020, from https://www.ogj.com/exploration-development/article/14174991/total-comes-up-dry-on-block-4-offshore-lebanon

Person. (2020, April 28). Lebanon's first offshore exploration well does not yield gas, oil. Retrieved July 31, 2020, from https://www.arabnews.com/node/1666236/business-economy

Saidi, N., Public, M., Hettlingen, J., & M, M. (2016, November 03). Can Lebanon Escape the Resource Curse? by Nasser Saidi. Retrieved July 31, 2020, from https://www.project-syndicate.org/commentary/lebanon-economy-oil-curse-by-nasser-saidi-2016-11

Lebanese Energy Minister: Preliminary Results Confirm Presence of Gas in Offshore Block 4. (n.d.). Retrieved July 31, 2020, from http://english.almanar.com.lb/1013300