Lebanon’s governing elite still pin their hopes on future energy wealth despite waning corporate interest and regional conflict.

Lebanon’s southern border has been making the headlines since the start of the war on Gaza on October 7. The following day, on October 8, Hezbollah joined the conflict, subsequently triggering the highest tensions in the region since the 2006 July War. Since then, military exchanges with Israel have been happening almost daily, displacing dozens of thousands, as well as destroying villages and agricultural land along the border.

Since early 2024, tensions along the Lebanese-Israeli border have accelerated high-level diplomatic efforts aiming to de-escalate and avoid an all-out war. These efforts included consecutive visits by foreign ministers and envoys of the United Kingdom, France, Germany, Spain, and the United States. So far, the most important ongoing initiative is led by Amos Hochstein, US Senior Advisor for Energy to President Biden. He is leading talks to de-escalate cross-border tensions and reach a ceasefire between Hezbollah and Israel and pave the way to solve the land borders’ disputes.

Even before the war on Gaza began, Hochstein had initiated efforts to solve a decades-old land border dispute in September 2023. He brokered a maritime border deal between Lebanon and Israel in 2022 allowing gas exploration on both sides. Yet, recent reports have claimed Hochstein will not return to Beirut before the Gaza war halts, believing serious negotiations will only commence once a ceasefire in Gaza is reached.

As the violence between Hezbollah and Israel continues to intensify, Lebanon’s oil and gas sector remains on hold and has become a key item of any future political deal once border tensions ease. Understanding the significance of this sector, and the maritime border itself, are critical for future diplomacy.

Updates since the 2022 maritime deal

The US-mediated deal to delineate the Lebanese-Israeli maritime borders was agreed on in October 2022. While Israel had already started to produce gas from the disputed Karish field in October, the deal reassured Lebanon’s government that drilling in Block 9, a gas exploration zone off Lebanon’s coast, would start soon after.

Following the signature of the agreement, preparations accelerated and in August 2023, the drilling vessel arrived in Block 9, expected to complete its work by early-November 2023. The maritime deal underpinned the exploration, reassuring international corporations, and the United States, of the temporarily stable security situation in the area primed for gas exploration.

Lebanon’s political class eagerly awaited the drilling operations result to reshape Lebanon’s energy future, while simultaneously strengthening the country’s credit worthiness to borrow cash in advance of natural gas sales. The agreement has also allowed the Lebanese government to launch a three-dimensional (3D) seismic study in Block 8 of Lebanon’s Exclusive Economic Zone (EEZ), which comprises 10 blocks, in August 2023. Previous surveys did not cover the zone due to the border conflict in Lebanon’s south. The block was marked as a potentially rich natural gas reserve.

High hopes for lucrative natural gas finds were disappointed within a matter of months. The consortium of TotalEnergies, Eni, and QatarEnergy announced on October 16 the completion of exploration activities and stated that they had not found enough natural gas in the targeted well.

The Lebanese government had already set a new deadline for the country’s second licensing round for international companies to submit their bids by October 2, 2023, after four previous extensions. This round had the remaining eight offshore blocks open for bidding, excluding Blocks 9 and 4. The same consortium holding licenses for Blocks 9 and 4 applied for the neighboring Blocks 8 and 10 claiming their interest in acquiring all blocks along the newly agreed-upon southern boundary.

TotalEnergies and its consortium partners failed to submit their updated exploration plan for Block 4 by the deadline of October 22, 2023. Consequently, they abandoned their rights in that block, prompting the government to announce that Block 4 was no longer covered by any license and would be re-offered in future licensing rounds. Notably, a well drilled in Block 4 in 2020 was also unsuccessful. Meanwhile, negotiations between the Lebanese government and the consortium were ongoing regarding their bids for Blocks 8 and 10, particularly concerning their proposed exploration timeline and strategy, which only received a conditional approval. The consortium once again missed the deadline for negotiations of February 16, 2024, failing to sign the contract and making the two blocks available again for new licensing rounds.

In parallel, earlier in January 2024, the Ministry of Energy and Water launched a third licensing exploration round, set to close by July 2, opening all nine offshore blocks for bidding, except the only remaining licensed Block 9.

Renewed US-diplomacy for land borders, but also for gas?

Following the start of the war on Gaza, Lebanese officials responded negatively to the consortium relinquishing their rights in Block 4, as well as failing to negotiate over Blocks 8 and 10. Although the drilling results in Block 9 are technically possible, and constitute part of the process’s uncertainties and risks, they have been publicly questioned by experts and political parties, with accusations that TotalEnergies did not abide by the technical requirements in the exploration and production agreement. At present, the consortium has not yet submitted the report of the drilling results in Block 9, missing the deadline by almost three months.

The sudden and consecutive setbacks from international oil companies, in particular TotalEnergies and Qatar Energy, are said to be linked to Hezbollah’s involvement in the ongoing hostilities with Israel, and continuous threats of uncontrolled escalation. Some sources suggest that Amos Hochstein’s proposal may include pledges to restart oil and gas exploration once a land border agreement is reached.

Head of the Free Patriotic Movement and MP Gebran Bassil went further, suggesting that Hezbollah’s involvement in the war could be traded for guarantees in oil and gas exploration, liberation of the disputed Chebaa farms, and the deportation of Syrian refugees. Hezbollah officials have stressed that the party would not accept the current status quo with Israel when it comes to the oil and gas portfolio. Yet, a long-term agreement on this matter is still far off, as the conflict in Lebanon’s southern borders is still ongoing, and Lebanon still needs to deliminate its maritime borders with both Cyprus and Syria to pursue exploration in other blocks

This brings back to the forefront the events that accompanied the 2022 maritime border deal, with increasing risks that oil and gas prospects are included in potential political agreements for land borders influenced first and foremost by geopolitical interests.

The bigger picture

The war on Gaza has forced new realities to the geopolitical scene, particularly regarding Eastern Mediterranean energy security. The energy diplomacy efforts that the US has long relied on to bring peace to the region have not produced the desired outcomes and need serious reconsideration.

Meanwhile, for Israel it is business-as-usual in its energy activities, announcing the production of the first gas finds at Karish North in February and awarding 12 licenses to international companies amid the war in October 2023, and reaching near-record Egypt exports again. Cyprus could produce its first gas by 2026, following the positive appraisal of the Cronos-2 well in Block 6 of its waters, managed by TotalEnergies and ENI. Egypt continues to pursue its licensing and exploration activities and is looking to strengthen energy cooperation with nearby countries, including Greece, while recently welcoming QatarEnergy’s expanding footprint in Egyptian waters.

Lebanon’s decade-long hope of becoming an oil and gas-producing country seems out of reach. Any potential gas discovery will not be possible before 2025, only if the consortium continues its work in Block 9. Development and production certainly will not take place before 2030. And as always, Lebanese citizens will likely face the repercussions of the ruling elite’s incompetence in managing such a vital and promising sector, a reality which is painfully familiar across Lebanese public services.

Source: Timwo,org by Marc Ayoub (He is a former Nonresident Fellow at TIMEP focusing on climate and energy in the Middle East and North Africa region).