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Lebanon - Economy

The discovery of huge oil and gas fields in the Levant Basin could be a new prospect for bringing both wealth and economic development to each of the countries in the region. It could also improve the energy security for countries that have been importers for both oil and natural gas since their inception. With the amount of resources discovered, and depending on their agility and proper management of the new fortune, the Levant countries could join the club of hydrocarbon exporters.

Lebanon had no oil or gas resources. While the country is located in the Middle East, an area historically rich in energy resources, no major oil or gas discoveries have ever been noted. Since its independence in 1943, the country started its search for oil by drilling many wells onshore. As the result was meager and once the civil war erupted in 1975, the government cancelled the exploration licenses.

This situation has changed with the discovery of significant natural gas reserves off the shores of Israel and Cyprus; the countries that share the same geological underwater basin with Lebanon. In August 2010, the Lebanese Parliament passed legislation concerning offshore Hydrocarbon exploration by allowing two Norwegian energy companies to conduct surveys in the Lebanese waters. The survey estimated that it holds 708 Billion Cubic Meters (BCM) of natural gas and from 440 to 675 million oil barrels. In 2013, The Lebanese cabinet adopted a decree specifying the conditions and qualifications for companies wishing to bid for an offshore exploration license. However, political turmoil delayed the deadline for submitting bids several times, putting the process of exploration in danger. Therefore, Lebanon is unable to start extracting oil and/or gas until at least around 2018, as planned. Meanwhile, huge new gas fields have been found offshore of Egypt and Israel, increasing the prospect that the pool extends into Lebanese waters as well.

Lebanon is hopeful that untapped oil and gas reserves may offer some uplift. Although proper exploration of the possible reserves is being stymied by political deadlock, estimates have suggested revenue from the reserves could yield as much as $600 billion. The Petroleum Administration Lebanon [LPA], which was set up by the government in 2012 to oversee the process, initially surprised many with its transparency and effective handling of the early stages of processing energy company bids to explore possible reserves. But a vast influx of money, fueled by a lack of transparency and a weak state could result in corruption and a poor distribution of wealth.

On November 7, 2012, the cabinet appointed the six members of the Petroleum Authority Board and endorsed on December 27 launching the first bid round of licensing for offshore oil exploration starting with prequalifying interested companies in the first quarter of 2013, issuing the bid proposal in the second quarter of 2013, and announcing the contract awards in early 2014. Lebanon submitted a unilateral claim of the southern limit of its EEZ to the United Nations in July 2010. Lebanon endorsed the Maritime Law, covering delimitation of maritime borders and its entire EEZ, in August 2011. Despite a maritime dispute between Lebanon and Israel over some 860 square km, the GoL is moving forward with exploratory activities in waters that are not claimed by Israel, which constitute the vast majority of Lebanon’s declared exclusive economic zone.

In Lebanon, the potential benefits from a domestic supply of gas are immediately clear; ending power shortages, wiping out Lebanon’s rapidly rising public debt, reviving the economic sector, social development, and the reduction of pollution. Locally produced natural gas is a major factor in resolving the question regarding the production of electricity in Lebanon. At present, the country suffers from daily cuts in electricity, because the demand exceeds 2,400 megawatts at peak times, while the production does not exceed 1,500 megawatts. Moreover, the production is costly, in that it relies on expensive, imported fuel, mainly diesel, which causes an annual deficit of 1.5 billion dollars on the public purse and generates losses on the national economy estimated at no less than $2.5 billion dollars per year.

Lebanon does not have an option to benefit from the discharge of its production of natural gas through the gas pipelines that exist or are currently in the Mediterranean, and therefore it becomes obligatory for it to move towards other pipelines or the option of transporting gas tankers from its ports if it decides to stay. If Lebanon settles on the option of transporting its gas by sea, and does not have the opportunity to deliver it to the sea gas pipelines, it is always possible to resort to the tanker option. The truth is that this option is considered the easiest and most pragmatic, given that it does not require the existence of complex infrastructure such as those required by pipelines, but Lebanon will have to work on finding a plant to liquefy gas in order to transport it by this means. But the option of transporting gas via tankers will put Lebanon in front of a fundamental question: Can a country that suffers from what Lebanon suffers from on the economic level buy complex and expensive tankers? Despite the obviousness of this legitimate question, other alternative solutions are also self-evident. Lebanon can charter tankers or place the burden of gas transportation on the importing country, with the transportation cost deducted from the total price of the cargo.