Lebanon-Israel maritime border agreement: What was achieved a year on?

On Oct. 27 2022, Lebanon signed a historic agreement with Israel demarcating the maritime border between the two countries. Who benefited most from this agreement? What does the future of the Lebanese gas sector look like in light of recent developments?

We spoke to two experts for answers: Michel Ghazal, consultant to the Lebanon delegation that conducted the maritime border demarcation negotiations and author of “Missed Opportunity: the secrets of the Lebanon-Israel Maritime Negotiations,” and

Mona Sukkarieh, energy and political risk consultant and co-founder of Middle East Strategic Perspectives.

Q- It’s been a year since Lebanon and Israel signed the maritime border demarcation agreement. What is your overall assessment of the agreement, given the uncertainty over a possible extension of the Israel-Palestine conflict?

A- Michel Ghazal: The results are clear. Lebanon only obtained the minimum it could have aspired to. The political leaders should have signed the decree that would have enabled Lebanon to claim its full rights through Line 29, i.e. an additional 1,430 km². Despite the many opportunities that presented themselves, they refused to apply the rules of international law to disputed areas. This is a missed opportunity that, depending on future discoveries, could potentially lead to several billion dollars in losses.

Admittedly, this agreement was beneficial to Lebanon, but to a lesser extent than it should have been. On the one hand, it helped to provide security assurances in the region, making Lebanon more attractive to companies interested in exploiting its potential oil and gas resources. But on the other hand, it did not, for example, allow Lebanon to benefit from all the revenues linked to the exploitation of the potential Qana field: contrary to the populist rhetoric of politicians, Israel could obtain up to 16 percent of the revenues, depending on the volumes in its waters as bordered by Line 23.

Most of the terms of the agreement are in Israel’s favor, making it the big winner of these negotiations. By signing the agreement, the Israelis were able to pacify a disputed area within Hezbollah’s reach, began extracting gas in the Karish field, retaining control over part of the potential Qana field and obtaining a larger surface area than they should have been entitled to.

But Hezbollah can also be seen as one of the winners of this agreement, insofar as it attributes its signing to the action of the “resistance” and thereby justifies its continued existence.

Moreover, by signing an agreement in this way, Lebanon has set an unfortunate precedent for future negotiations. The fact that it has not agreed on the demarcation of its maritime borders with Syria gives [the Syrians] the opportunity to refuse to apply international standards. Syrian officials could then question Lebanon’s willingness to apply these rules with a sister “country,” when it has refused to do so with an “enemy” country.

A- Mona Sukkarieh: Reducing the risks at the border is the main implication of this agreement. It provides a relatively more suitable environment for investors and slightly more stable conditions for companies on both sides of the border. We have gone from exchanging threats against offshore activities and facilities in the region to producing gas on one side of the border and drilling an exploratory well on the other.

This has also resulted in exploration border activities becoming increasingly attractive, as shown by the results of the calls for tenders Lebanon and Israel opened: On the Lebanese side, a consortium — comprising TotalEnergies, ENI and QatarEnergy — submitted a bid for [exploration rights to] Block 8 and another for to Block 10 in the south of the Lebanese exclusive economic zone (EEZ). On the Israeli side, Socar, BP and NewMed Energy placed a bid for [blocks in] Zone 1, which lies in the north of the Israeli EEZ. It is hard to imagine that these companies would have expressed the slightest interest in the absence of such an agreement.

Lebanon also achieved a demarcation of its maritime border, which is not insignificant, pending the final demarcation with Cyprus and the resolution of the border dispute in the north with Syria.

Politically, the agreement was criticized in Lebanon, where many felt that the country had made concessions and could have obtained an even wider zone. These criticisms resurfaced after the disappointing drilling results at Qana field, and some have even called for the agreement to be terminated. But the debate around the lines is over now, and the agreement cannot be ended without damaging the image of the Lebanese state.

Q- To what extent could the resurgence of tensions in southern Lebanon dampen the interest of the consortium already present and potential candidates to other blocks in the Lebanese EEZ?

A- Michel Ghazal: The resurgence of tensions in the region is counter-productive for the exploration activities in Lebanon and could dampen the interest of companies that want to get involved. This is because, even if the maritime border demarcation agreement has pacified the situation, there is no guarantee that these assurances will remain effective. The current environment is well changing the situation and could inflame it, as Hezbollah cannot stand idly by in the face of Israel’s reprisals, which killed thousands of civilians in Gaza. This is endangering the platforms operating on both sides of the border.

This same situation has also revived a new breed of conspiracy theories, according to which the consortium, led by TotalEnergies, was forced to withdraw from southern Lebanon earlier than expected and to announce that it had not found any gas in the well drilled in Block 9.

A- Mona Sukkarieh: The current tensions are a reminder that the geopolitical risk in the region continues to be high and that the agreement only reduces the risks at the border — given that a border dispute has been resolved — but does not eliminate them, given the confrontational situation between Lebanon and Israel, which could degenerate if the context so permits.

The resumption of tensions between the two countries is for the moment limited to the land border. But this has increased uncertainty and raised the risk of a more serious military escalation. This is bound to have an impact on the sector-related developments in both countries. It is likely, for example, that during the negotiations that precede the official award of exploration licenses, the companies could use this opportunity to improve the terms of the agreements in their favor.

Q- Lebanon is already well behind its neighbor in this area. Could the disappointing results of the initial explorations and the consortium’s recent decisions (disinterest in Block 4, premature withdrawal from Block 9 and still no contracts signed for Blocks 8 and 10) jeopardize Lebanon’s bet for gas?

A- Michel Ghazal: One must bear in mind that Lebanon is still not a gas country: it hasn’t made any discoveries to date and it won’t be possible to extract gas immediately. This is normal and does not really call into question possible future discoveries. However, if these do materialize, the absence of stability and peace in the region would jeopardize this bet, making Lebanon less attractive to foreign companies.

A- Mona Sukkarieh: No, not necessarily. It’s a reminder that offshore exploration is a long process, with its risks, challenges and uncertainties. Lebanon is taking its first steps in the exploration phase, having only drilled two wells in its EEZ. It is not unusual for results to be disappointing from the first drills. By way of comparison, 20 wells were drilled off the Israeli coast before the first discoveries were made — which were small discoveries by the way — in 1999 and 2000, and more than 40 have been drilled since.

This does not mean that Lebanon will have to wait that long. It is simply impossible to know when Lebanon will eventually make its first discovery, but it is generally estimated that the success rate for drilling in deep waters is around 20 percent. The deeper you dig, the more likely you are to make a discovery. But to drill, one needs to attract companies. And to attract companies, one needs to provide them with a political, economic and regulatory framework that is conducive to investment.

One should keep in mind that even if a discovery is made, it can take many years to move on to the production phase, as the experience of neighboring countries shows. Cyprus, for example, made its first discovery in 2011. Production is not expected to start before 2027. While there has been huge disappointment in Lebanon after just two drillings, it is because the expectations surrounding the sector were heightened from the start of the offshore adventure for political reasons, and this trend was reinforced after the start of the economic and financial crisis. This ended up fueling the most insane conspiracy theories. If there is one lesson to be learned from this past year, it is that we need to take a more realistic view of the sector, its opportunities and its limitations.

This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.