The United States-brokered agreement

An unprecedented agreement between two countries technically at war. Without being under the same roof, the leaders of Israel and Lebanon signed the first-ever maritime border demarcation pact on 27 October.

The move puts an end to the long-standing dispute over their gas-rich waters. Following the signing, the two nations will share valuable offshore gas fields.

The area disputed for years by the two sides is about 860 square kilometres in the eastern Mediterranean, which is home to the Karish and Qana gas fields. The deal gives oil and gas rights in the Karish field to Israel, while Lebanon gets access to the Qanaa prospect, with Israel earning 17% of the profits.

The accord was reached after months of indirect and intermittent talks that began in 2020, mediated by Amos Hochstein, the United States energy envoy. As stated by Hochstein from the Lebanese presidential palace in the city of Baabda, after receiving the agreement initialled by the Lebanese president, Michel Aoun, followed by the signature in Israel of the prime minister, Yair Lapid, “this agreement was drafted with the idea that it was between two countries that do not have diplomatic relations (…) I believe that goodwill and good faith efforts on all sides is what will move this forward”.

Hochstein assured that he hoped that the agreement would be maintained, even with the changes of government in the two countries, after referring to the forthcoming elections in Israel on 1 November 2022 and the end of Aoun’s term of office on 31 October 2022. The agreement should be maintained “regardless of who is elected very soon as the next president of Lebanon”, he stated.

Previous tensions and finalizing the deal

The Greek independent Engean had previously had inconveniences in the formerly disputed region. During the summer, an Energean vessel arrived in the Karish field to develop the gas field, although the rig was positioned south of any claimed Lebanese lines.

Furthermore, threats to strike the rigs were also received during this period, highlighting that gas couldn’t be pumped before an agreement was reached.

But a combination of factors pushed Israel and Lebanon to finalize the deal, including global demand for natural gas following the Russia-Ukraine-NATO crisis; the prospect of a deal guaranteeing quiet on Israel’s northern border; upcoming elections in Israel; and economically battered Lebanon’s need for income.

The Karish field and the Qanaa prospect

According to a CPR produced by DeGolyer and MacNaughton in November 2020, the Karish Field contains 1,409 billion cubic feet of gas 2P reserves, plus 61 million barrels liquids 2P reserves. This represents a total of 317 million barrels of oil equivalent 2P reserves.

As stated by Energean, the company made a Final Investment Decision for the development project in March 2018. The Karish main field will be the first asset to be developed in the Karish and Tanin blocks by the Group; Karish was selected as the initial development as it is the largest discovery, is expected to provide the highest yield of liquid per volume of produced gas and is the closest discovery to shore.

Furthermore, Energean has decided to develop the Israeli fields using the “Energean Power” Floating Production Storage Offloading (FPSO) that will be installed 90 kilometres offshore, making it the first FPSO ever to operate in the Eastern Mediterranean.

The FPSO will have a gas treatment capacity of 800 million standard cubic feet per day (8 billion cubic metres per annum) and liquids storage capacity of 800,000 barrels, which the company believes provides a flexible infrastructure solution and, potentially the scope to expand output for potential additional projects.

‍

On the other hand, the deal places Karish in Israeli waters while guaranteeing Lebanon’s right to fully control the Qana prospect where Blocks 4 and 9 in 1400 to 1800 metres of water were licensed for exploration in 2017 to a consortium led by TotalEnergies (40%) in partnership with Eni (40%) and Russia’s Novatek (20%).

Israel will share in Qana’s revenues (given that the border line splits the field), but TotalEnergies will act as middleman, working exclusively with Lebanon as regards control of Qana while managing financial relations with Israel to avoid any direct partnership relations between the 2 nations that have been at war since 1982.

Meanwhile, according to Walid Fayyad, Lebanon’s Minister of Energy and Water, Qatar’s Oil Minister Saad Sherida al-Kaabi expressed the emirate’s interest in taking over Novatek’s 20% interest after the Russian LNG producer’s subsidiary, Novatek Lebanon SAL, informed Lebanese authorities it would exit the consortium when the initial 5-year exploration period ended on 22 October 2022.

Although the only exploration well drilled so far in Lebanese waters (on Block 4 in 2020) turned up dry, data analysed so far suggest that Block 9 may be different. TotalEnergies had planned appraisal drilling at Block 9 this year but hesitated because of the border issue. However, as news of the agreement broke in October, Lebanese authorities were meeting with representatives of TotalEnergies in Beirut to greenlight a resumption of activity and an extension of the 5-year licence agreement.

‍