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In Lebanon, officials talk of a bright future funded by oil and gas reserves

Lebanon’s energy minister envisions a host of civic improvements funded by oil and gas revenue, including a metro in Beirut. This ad from the energy ministry says, “Our country has oil so we have a transport network.” (MINISTRY FOR ENERGY AND WATER)

Encouraged by successful gas exploration in neighboring Israel and Cyprus, Lebanon is seeking to transform its debt-ridden economy and creaking infrastructure by tapping into its own offshore oil and natural gas reserves.

The country’s energy minister, Gebran Bassil, last month opened the first round of bidding for contracts to explore the reserves. To a hopeful public, he spoke of potential revenue “in the billions” and, in an emotional video, envisioned a gleaming metro running through Beirut, a round-the-clock electricity supply and free education for all.

It is an appealing vision for a country that has no public transportation to speak of and daily rolling power cuts of up to 20 hours due to chronic infrastructure problems. The situation is so bad that in 2012, the World Economic Forum ranked Lebanon last out of 144 countries in quality of energy supply.

But analysts caution against being too optimistic.

“There are many factors that do not inspire confidence,” said Alia Moubayed, senior Middle East economist at Barclays Capital in London.

Lebanon’s dysfunctional political system, sharply divided along sectarian lines; an increasing absence of state authority; and poor coordination among government ministries could make it difficult to carry out such an ambitious plan, she said. There’s also a risk that politicians will misuse or misappropriate revenue generated by the energy resources.

Competing claims by Israel and Lebanon to about 215,000 acres of potentially mineral-rich maritime territory and increasing instability caused by the Syrian civil war could also complicate the effort.

Lebanon began to tap its onshore oil resources in the 1960s, but the long civil war stopped all development. While the government has known about the resources lying off the Mediterranean coast for decades, the focus did not shift there until 2000. Political infighting, a major war with Israel and long stretches without a government have hampered decision-making since then.

Officials swung into action only recently, after Israel and Cyprus began developing their natural gas reserves in earnest. The Petroleum Administration, responsible for negotiating oil and gas contracts, was supposed to be appointed early last year, but squabbling over representation for the country’s different religious sects delayed the process by months. Ultimately, the six seats were given to men from each of Lebanon’s six largest religious groups.

Lebanese officials hope to begin production in 2016, but that timeline leaves them lagging behind Cyprus and Israel, which share the Levant Basin with Lebanon. Cyprus recently signed deals for offshore drilling, and in March, Israel started pumping gas from its new $3 billion Tamar field. Israel, which is still officially at war with Lebanon, is also developing its huge Leviathan gas field, which has the potential to make the country a net energy exporter.

Most Lebanese are cautiously optimistic about their oil and gas prospects. But many are doubtful that Bassil — who has yet to improve the electricity situation — can deliver on his grandiose promises.

His recent public relations campaign, which coincided with the opening of bidding, was roundly mocked on social media, including one satirical ad suggesting that the ministry should dream higher, using energy resources to create luxury smoked-salmon versions of the standard Lebanese manaqeesh pastry or to host the Olympics.

Bassil denies that he is raising expectations too high. “In a country like Lebanon where people are becoming hopeless, you have to give them hope,” he said in an interview at his home in the mountains above Beirut.

“It is too soon to give exact quantities, but we are sure we have the petroleum resources and we have them in huge commercial quantities,” he said.

British geological surveyor Spectrum has estimated that up to 25 trillion cubic feet of gas lies under Lebanon’s waters, along with 440 million to 660 million barrels of oil.

If the predictions are correct, Lebanon’s gas reserves would put it on a par with Bolivia or Pakistan. By comparison, Israel is estimated to have around 35 trillion cubic feet of gas. The amount of oil in Lebanon would be comparable to the proven reserves of Ghana.

These are not the kind of resources that built glittering cities in the deserts of the Persian Gulf, but for a small country of 4 million people, the revenue could have a significant impact.

Fluctuations in energy prices and other factors make it impossible to know how much Lebanon would earn from oil and gas extraction. And the government, led by caretaker Prime Minister Tammam Salam, has yet to agree on a revenue-sharing framework to determine its share of the proceeds.

Once oil and gas do begin to flow, they could be used for domestic consumption rather than export. Lebanon now imports all its fuel, and a domestic supply could help relieve pressure on the loss-making national electricity company.

That would free up money to tackle Lebanon’s vastly inadequate electricity grid, which has never recovered from the 1975-1990 civil war, when production all but ground to a halt and energy infrastructure was damaged by bombs and neglect. Today, the power goes off for at least three hours a day in central Beirut and far longer in much of the rest of the country.

If Lebanon is able to export some of its resources, former prime minister Najib Mikati has suggested that the revenue could be used to pay off part of the country’s high public debt, which stands at about 140 percent of gross domestic product — the highest in the Arab world.

Additional oil and gas revenue would go into a sovereign wealth fund, as dictated by the country’s Offshore Petroleum Resources Law, and in theory it could be used to pay for the promised metro system and social services.



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