Lebanon, already mired in one of its worst-ever economic crises, is pinning its hopes on offshore oil and gas exploration as a beacon of possibility amid dire circumstances. For years, the country has nurtured dreams of unlocking its offshore hydrocarbon reserves, buoyed by regional dynamics and a desire to diversify an inherently fragile economy.
Last week, a drilling rig arrived off Lebanon’s coast, with plans to commence offshore oil and gas exploration later in the month, as confirmed by the French energy conglomerate TotalEnergies.
This development comes in the wake of a significant agreement brokered by the United States last year. This historic agreement demarcated a maritime boundary between Lebanon and Israel, marking a pivotal moment in regional geopolitics.
TotalEnergies leads a consortium for this offshore endeavor, known as Block 9, which includes participation from Italy’s ENI and QatarEnergy, a state-owned entity.
However, the quantity of gas or oil that Block 9 holds, if any, remains uncertain.
Lebanon’s interest in offshore exploration sprouted in the early 2000s as the nation embarked on a journey to explore its hydrocarbon potential. Nestled between oil-rich neighbors, the allure of delving into offshore oil and gas discoveries captured Lebanon’s aspirations, promising economic self-sufficiency and relief from external pressures.
Yet, this pursuit has been fraught with challenges – complex geological conditions, deep water depths, technical complexities, and relatively small potential reserves.
Domestic political obstacles, including governance issues, administrative delays, institutional weaknesses, and corruption, have also impeded progress. These hurdles have hampered Lebanon’s ability to attract investments and establish a robust regulatory framework.
Complicating matters further are the intricate regional geopolitics. Lebanon’s offshore aspirations have been entangled in disputes over maritime borders with neighboring nations, igniting diplomatic tensions that risk destabilization.
Today, Lebanon teeters on the brink of a financial abyss. A plummeting currency, depletion of foreign reserves, and persistent power outages have pushed the nation into a dire predicament. Lebanon views its potential oil and gas resources as a lifeline to address its economic woes, including high debt and unemployment rates. The government anticipates that revenue generated from the hydrocarbon sector will rejuvenate the economy and enhance infrastructure.
Managing Expectations
In light of the intricacies involved, experts like Marc Ayoub, from the Tahrir Institute for Middle East Policy, urge caution and emphasize the importance of learning from history.
“In 2013, Lebanon initiated its first offshore licensing round to auction exploration and production rights within its Exclusive Economic Zone. The process, though promising, was marred by political and administrative setbacks, leading to substantial delays and a hold on contract awards,” Ayoub stated.
He notes that while discoveries might materialize, the transition from potential reserves to productive wells is a lengthy process, taking around four to five years. Lebanon’s ongoing financial crisis cannot hinge solely on the oil and gas sector.
Ayoub underscores the need for a comprehensive approach rooted in macroeconomic reforms, banking system restructuring, and fiscal policy transformation. Oil and gas should serve as supplementary contributors.
Charting Lebanon’s Future
Navigating the complexities ahead demands a holistic strategy. Recently, Lebanon’s Budget and Finance parliamentary committee unveiled a draft law to establish a Sovereign Wealth Fund (SWF) for overseeing oil and gas revenues. This development follows seven months of parliamentary deliberations. However, questions remain about the optimal timing for its creation.
Laury Haytayan, a Lebanese oil and gas expert, explains that the law, ratified in 2010, mandates that all oil and gas sector revenues eventually flow into an SWF, but it doesn’t specify the timeline for its establishment.
Haytayan points out that the SWF’s creation is tethered to Block 9’s results and TotalEnergies’ determination of gas viability. While the SWF aims for transparency and prudent fund management, Lebanon’s precarious conditions have challenged the effectiveness of such laws in guaranteeing these ideals.
She emphasizes that Lebanon must recalibrate its energy strategy, especially considering the changes that have transpired within the country. As Lebanon grapples with economic and institutional breakdowns, the adoption of renewable energy, particularly solar power, has grown among citizens as an alternative to unreliable government-supplied electricity.
Given this trend, directing investments toward renewables might outweigh the pursuit of gas.
Balancing Blessing and Curse
Lebanon stands at a crossroads where the specter of the resource curse looms large. Drawing from global examples like Nigeria and Angola, which struggled with mismanaging their oil wealth, Lebanon must remain vigilant.
“A resilient governance framework emphasizing transparency, accountability, and prudent management is paramount to avoid the resource curse’s treacherous grip,” Ayoub emphasizes.
Haytayan stresses that transparency and accountability depend on more than just regulatory provisions; they require a culture of responsibility and the resolve to uphold ethical practices. Lebanon’s existing transparency laws serve as a foundation, but the nation’s collective intent to uphold them is crucial.
As Lebanon grapples with stewardship, it must consider the question of leadership. Haytayan notes that the prevailing political class, marred by malfeasance and mismanagement, may not be equipped to oversee the oil and gas sector efficiently.
Expectations should be tempered with pragmatism as Lebanon embarks on this challenging journey to harness its oil and gas resources. While they hold promise, they are not a panacea for the nation’s current economic woes. Lebanon’s path to a more stable future will require comprehensive, multifaceted reforms beyond the energy sector alone.