Energy geopolitics: New Lebanese confrontation with Israel, or calming of the waters?

Energy geopolitics: New Lebanese confrontation with Israel, or calming of the waters?
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Lebanon’s decision to approve licenses for two offshore gas blocks that are part of a dispute with Israel has caused new swells in the stormy political waters of the Mediterranean Sea.  

A country that relies heavily on energy imports, Lebanon wants to start benefiting from the reserves in its part of the gas-rich Levant Basin.

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Lebanese officials say there are about 700 billion cubic meters of natural gas reserves in its waters. That’s almost equal to Russia’s yearly natural gas production.

 

There’s a monkey wrench in Lebanon’s gas-development plans, however. Israel is claiming a sliver of the same waters — and thus some of the same gas reserves — that Lebanon claims.

Lebanon's efforts to find a solution to the dispute through the United Nations Law of the Convention of the Sea have foundered because Israel is not a signatory to the convention.

A U.S. proposal, dubbed Hof’s line, to divide the disputed Levant Basin triangle in a two-thirds to one-third ratio favoring Lebanon also has failed to steam into port.

Lagging behind other East Mediterranean countries in the development of oil and gas reserves, and frustrated over its dependency on energy imports, Lebanon decided to stop wasting time and approve its first two offshore development licenses.

A consortium consisting of France’s Total, Italy’s ENI and Russia’s Novatek have obtained the rights to explore the Lebanese assets. The consortium’s makeup reflects a Lebanese strategy to hedge against any security challenges associated with the blocks’ development.

ENI is the most successful Western company in the basin. After success striking gas in Egypt’s giant Zohr field, it announced the discovery of the Calypso field in the waters off Cyprus.

Total has had a petrochemicals and retail presence in Lebanon since the 1950s. It also has broad experience developing and operating complex offshore oil and gas fields.

From Europe’s point of view, the development of oil and gas fields near its southern shores can only help its fossil-energy diversification efforts away from Russia. Despite enhanced European Union efforts to diminish dependence on Russian gas imports, Gazprom has remained the record gas supplier to Europe in 2017.

Russia’s largest LNG exporter’s participation in the consortium adds a new geopolitical dimension to Lebanon’s oil and gas development effort.

Deprived of mid- to long-term financing because of U.S. and EU sanctions, Novatek is following Rosneft and Gazprom’s lead by investing in overseas assets to ease the sanctions’ impact and replenish its reserves.

Novatek’s participation in development of a natural gas field in the Levant Basin is part of a Russian strategy to protect its European market by encircling it on the north and south. Europe’s domestic natural gas production is declining. The continent will be relying on external sources to supply its demand. Russia is determined to protect its market share in this lucrative European market by adjusting its natural gas marketing methods and by investing in assets located in southern shores of the continent.

A key part of the northern encirclement is building the Nord Stream 2 pipeline to supply gas to Germany, as well as building TurkStream pipeline via the Black Sea to Turkey by circumventing Ukrainian transit. The southern encirclement also involves obtaining access to oil and gas infrastructure off Europe’s southern shores.

Rosneft's purchase of 30 percent of Egypt’s Zohr assets reflect a Russian effort to protect its share of the European energy market in the face of European efforts to find alternatives to Russian supplies.

In addition to the Zohr deal, Russia has obtained access to two underused Egyptian LNG terminals and has cut oil supply deals in politically tumultuous regions such as Libya and Iraqi Kurdistan.

The changes in the Eastern Mediterranean oil and gas map have altered the geopolitical dynamics in the region and worldwide.

Israel has shifted from being an energy importer to a natural gas exporter. Its recent agreement to supply gas from its Leviathan and Tamar fields to an Egyptian energy company is a vivid example of how the tables have turned.

Lebanon’s licensing deal is only the start of the challenges it faces in developing its oil and gas assets and becoming energy-independent. It generally takes four to seven years before an offshore field begins producing.

The government and the consortium will also have to decide where to send the hydrocarbons that are produced.

Lebanon’s decision to include Novatek in the Levant development consortium, and subsequent decision by Russia Prime Minister Dmitry Medvedev to conclude an agreement for increased military cooperation with Lebanon, sent a message to Israel and other countries in the region — and globally. It was that Lebanon is determined to deter a military escalation with Israel before the Levant development can take place.

Other factors that could help determine how Lebanon’s oil and gas development efforts go include the way the Syrian conflict plays out, whether Iran’s nuclear deal with the West holds, and the results of elections in Lebanon, Israel and Iraq in the first half of 2018.

Russia’s expansion of its oil and gas infrastructure assets in the region could crimp Europe’s efforts to diversify away from Russian energy supplies and lead to the weakening of sanctions against Russian oil and companies. This means the United States should be wary of Russia’s energy geopolitics in the region.

U.S. Assistant Secretary of State David Satterfield’s recent visit to Lebanon suggests Washington is still committed to resolving the dispute. One thing it should do to counter Russia is promote regional energy cooperation initiatives through organizations such as the Mediterranean Energy Cooperation and Mediterranean Gas Grid Operators Dialogue.

Rauf Mammadov is resident scholar on energy policy at The Middle East Institute, focusing on issues of energy security and global energy industry trends.