• Jean AbiNader

Energy Exploration Process a Major Test for Lebanon

Maybe there may be some luck in Lebanon’s future after all. For 60 years, the people of Jordan, Palestine, and Lebanon benefited from the region’s oil wealth, not directly, but as a result of the hundreds of thousands of their citizens who worked in the Gulf since the early 70s.

Visiting Aramco and cities throughout the Kingdom in the late 70s and early 80s, I invariably came across Lebanese working in Saudi Arabia (my Barakat cousins even had a company in Jeddah), in many positions related to the country’s development – from the financial sector to agriculture, food processing, retail, construction, engineering, and education, among others.

In those years, Yemeni shopkeepers recognized my accent from having lived in Sanaa, which only slightly affected the jabali (mountain = hillbilly Arabic) I learned from my parents…some things are not worth changing. Even today people enjoy hearing my Araby makhlota (mixed Arabic) as the Lebanese language, thanks to LBC, Fayrouz, and Lebanese cinema, is well-known throughout the Arab world.

Now, Lebanon, nishker allah, may finally get a break if it can diminish its usual tribal politics and move ahead proactively with awarding its oil and gas concessions. A recent Al Monitor called the potential energy resources a “game-changer” for the country, as Lebanon and Israel met to discuss for the first time the demarcation of their maritime border.

It was only a year ago that the Lebanese government, despite a vacant presidency, agreed on a formula to divide the offshore gas and oil blocks using political, geographic, and sectarian criteria! Sectarian business as usual had delayed the agreement, giving Cyprus and Israel a significant head-start in exploiting the potential resources.

The first two blocks were recently awarded and an agreement is expected to be signed by the end of January, with exploration slated for mid-2019 and any commercial production in 2021-22.

Two major conditions will impact the likelihood of production: a continuing agreement between the political factions, already threatening to implode; and maintaining the current stalemate between Hezbollah and Israel as one of the blocks in located next to the Israeli economic zone. Internally, managing the energy agreement is a hot item that may affect the Aoun-Berri alliance. President Aoun, keeping with his pledge to keep corruption out of the energy business, wants the Energy Ministry, held by his party, to be in control; while Speaker Nabih Berri, is, of course, looking to set up an agency controlled by his party, to shape the award and exploration process.

According to Al Monitor, “The next parliament, with a term that expires once the energy exploration concludes in 2022, will have to debate and vote on establishing a sovereign fund to preserve and invest the surplus revenues of oil and gas production. The exploration process’ financial dimension is currently led by a small unit in the Finance Ministry, while the energy minister, advised by a multi-confessional Petroleum Authority, handles the technical side. Moving forward, Lebanese politics is not expected to have an impact on the exploration process, at least until production starts.”

Who controls the future?

Absent Hezbollah, it would have been rather straightforward for Lebanon and Israel to adjudicate a boundary in the sea. However, given the continuing war of words on the border, this is not a sure bet. As Al Monitor put it, “The blue line that was drawn in 2000 between Lebanon and Israel, from Shebaa Farms to Naqoura, was not extended into the sea, which caused a dispute over 860 square meters (9,257 square feet) of international waters and triggered an energy exploration race between Lebanon and Israel.”

Previous US and UN efforts to hammer out a bilateral agreement failed and were suspended in 2014. In December 2017, military commanders from UNIFIL, Lebanon, and Israel met to demarcate the “maritime blue line.” “Satisfied with the status quo along the Lebanese-Israeli border since 2006, both Hezbollah and Israel became less interested in a confrontation as they eyed the economic benefits of oil production,” according to Al Monitor.

What’s vital to Lebanon is that, given its excessive power demand, it will absorb an energy production for at least the next two decades. Given that the production costs may increase due to the sedimentary layers about the hydrocarbons, an increase in production costs may cut into the profits of the Lebanese state.

As the Al Monitor article concludes, “Managing expectations is paramount regarding the potential benefits and rewards of energy production. The Lebanese government has yet to devise a long-term economic plan or offer a road map that addresses the country’s crippling electricity problem and a national debt spiraling out of control. Lebanon’s energy promise could indeed be a regional game changer, but the jury is out on whether the Lebanese people will get the chance to reap the economic benefits.”

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