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Lebanon’s gas hopes threatened by corruption

Energy sector legislation may not prevent corruption marring any future gas discoveries, a new book says

Lebanon will take important steps in the coming months which will ultimately determine if it is to join the ranks of East Mediterranean countries with offshore gas reserves. 

A consortium of Total, Italy’s Eni and Russia’s Novatek is expected to start drilling in the country’s Block 9 concession by mid-2020. And 31 January next year is the bid closing date for five more offshore blocks (1,2, 5, 8 and 10). 

All looks set fair. Given Lebanon’s current economic problemsand the angry public reaction to government efforts to solve themthe discovery of gas would surely provide an enormous boost for the country’s coffers. Or would it? 

Only a few pages into The Future of Petroleum in Lebanon: Energy Politics and Economic Growth*, edited by Sami Atallah and Bassam Fattouh, doubts are sown. “Although Lebanon is well endowed with human capital,” we are told, “its institutions are weak… personalised politics driven by patronage and clientelism are rampant, making Lebanon particularly vulnerable to the resource curse,” implying the squandering or theft of hydrocarbons production revenue. 

There are strong beliefs [among Lebanese] that the political elites will benefit most

But we are getting ahead of ourselves. No gas has been found yet, although it seems fairly certain that reserves are down there. Ata Richard Elias, in a chapter estimating the possible size of gas deposits off Lebanon, points out that, in the decade or so up to 2014, a total of around 40tn ft³ was discovered in the Levantine Basin, a figure which includes the Leviathan (18tn ft³) and Tamar (10tn ft³) discoveries off Israel. 

But, he continues, exploration and production activities face “many challenges in the Levantine Basin in general and the Lebanese offshore in particular”. Water depths mostly below 1,500m present “serious technical complications” which will translate into extra investment in infrastructure and technical skills. High costs, Elias concludes, could prevent “some proven resources from becoming a viable economic discovery or reserve”. 

Then there is the issue of finding markets for the gas, a problem with which Cyprus and Israel have been wrestling for years. Fattouh and Laura El-Katiri, in a chapter looking at gas trading options, conclude that small discoveries “could provide Lebanon with an opportunity to feed primarily into its domestic market and develop small-scale exports into neighbouring countries such as Turkey, Syria, Egypt and Jordan”. Bigger discoveries could justify LNG exports, although “bearing in mind the various opportunities and constraints that LNG may face by the time Lebanon enters the market”. 

Corruption factor 

If gas does eventually either come ashore in Lebanon or is exported via another route, then the focus will be on what happens to the revenue. Examining the risk of corruption in the energy sector, Reinoud Leenders points out that new legislation and the creation of the Lebanese Petroleum Administration are positive signs that “strongly suggest awareness of the complex issues at stake”. But what has been done so far in efforts to maximise transparency and accountability “is far from perfect, let alone corruption-proof”. Key is to sort out “the right politics to uphold these good intentions”. That is no small ask. 

The Future of Petroleum in Lebanon is a weighty book in every sense: 20 authors between them fill some 350 pages of text, tables and maps. Chapters cover governance, management and licensing, impact and implications, and public input. On this last subject, the authors say that among the Lebanese public there is “general optimism regarding the potential impact of Lebanon’s petroleum sector, but there are strong beliefs that political elites will benefit most”. 

No company or individual interested in Lebanon as a potential energy player can be without this comprehensive examination of the sector and the context in which it operates. The hope must be that it helps open the way for any future discoveries to benefit the country as a whole, and that the detailed research and analysis it provides are not rendered worthless by the vagaries of Lebanon’s flawed political system. 

 *Published by Bloomsbury, IB Tauris

Source: Petroleum Economist
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