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Abu Dhabi, UAESaturday 23 March 2019

Lebanon plans for a gas-fuelled but sensible future

There is a palpable sense of relief and surprise that Lebanon has progressed so far in creating a framework for its embryonic gas industry.
Gibran Bassil, Lebanon's energy minister, points at a map of possible offshore gas reserves. Mohammed Azakir / Reuters
Gibran Bassil, Lebanon's energy minister, points at a map of possible offshore gas reserves. Mohammed Azakir / Reuters
'So far, so good," says Sami Atallah, the director of a Lebanese think tank. Since the giant discoveries of offshore gas in neighbouring Israel and Cyprus, the country is attracting attention for more than fashionistas, finance and feuding politicians. There is a palpable sense of relief - and surprise - that Lebanon has progressed so far in creating a framework for its embryonic gas industry.

Despite a very slow start, the country has passed laws, established a petroleum authority, covered its waters with high-quality seismic data to reveal the geology and attracted 46 companies to qualify for its inaugural licensing round. Among them are giants of the industry such as Shell, Chevron, Statoil, Petrobras and Petronas. Now it needs elections and a new cabinet to pass two crucial decrees by the autumn.

The energy minister, Gibran Bassil, announced on Friday that just a small part of Lebanon's offshore zone might hold 30 trillion cubic feet of gas, enough to meet the country's current demand for more than 200 years. Only drilling will tell for sure if Lebanon has gas - and perhaps oil. But just last month, there was yet another sizeable Israeli discovery at Karish, within a few kilometres of Lebanese waters.

So far, international attention has focused more on how large gas finds are already reshaping the politics of the Levant, Turkey and Cyprus. At least outside Lebanon, there has been less discussion of what its offshore resources could mean for the country itself - its shaky economy and turbulent politics.

Lebanon is different from new oil states in sub-Saharan Africa. Yes, governance and the state are weak. But Lebanon has a wealth of human capital - including among the large diaspora - in relevant areas such as finance and engineering. Its petroleum policy gives preference to local contractors, in the hope that - like Brazil or Norway - it can develop a robust local oil services industry.

The plan is to place petroleum revenues - which would arrive in 2019 at the very earliest - in a sovereign wealth fund under independent supervision. This is intended to save it from being doled out to competing political factions. Then - at least in theory - decisions can be made on how to spend it.

There are four main options. The money can be saved for future generations (as in Norway), used to pay down Lebanon's extraordinary public debt (almost 140 per cent of GDP), distributed to citizens directly (as in Alaska, where the payout was US$878 last year for most residents) or used for government expenditure, typical of most oil-producing countries. Of course, Lebanon badly needs to improve social services, health, education, its painfully sluggish internet and woeful electricity supply. Offshore gas can certainly supply new power stations and alleviate a crushing oil import bill that reaches 10 per cent of GDP.

But with projects such as the Beirut-Sidon motorway costing four times what they should have, there is a danger that the government spends money it has not got on white elephants, corruption and patronage. Petroleum revenues have to be directed at long-term investment - in both infrastructure and people - and not in creating meaningless state jobs. Without prudent macroeconomic policies, a sudden influx of gas money can drive up the currency and wages and hollow out the non-oil economy.

Lebanese politicians are afraid of handing petroleum money directly to citizens, for fear of accusations of vote-buying. But a universal benefit could be the best way to ensure Lebanese see the benefit of their natural resources, gain from a truly national rather than confessional programme, and demand accountability from their politicians for how the money is spent.

The regional political scene, as the chaos in Syria grinds on and draws in Lebanese on both sides, is deeply unpromising. But progress so far on finding the gas and using it wisely has been surprisingly encouraging.

 

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon.

Updated: June 3, 2013 04:00 AM

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