Yassin Fawaz- Forbes

BEIRUT–For the better part of four decades, Lebanon has been battered by one knockout punch after another. Many of its wounds have been self-inflicted–civil war, sectarian strife, political paralysis, corruption–but the country has also been beset from the outside. It was also under Syrian military domination for years, invaded twice by Israel, manipulated by Iran, and staggered by the bombing death of its former prime minister, Rafiq Hariri. Now the tiny country is struggling to feed, house and educate more than 1 million refugees from next-door Syria.

What else could go wrong? It could miss a major economic opportunity, partly for reasons beyond its control but partly because the country can’t get its act together.

Just over a year ago Lebanon, which needs all the help it can get, was preparing to auction the first licenses to drill for gas in its territorial waters. Nearly 50 major international energy corporations, including Total, Shell, Chevron and ExxonMobil, had qualified in April 2013 to enter the bidding for exploration licenses. Since then, vast new gas reservoirs have been found in the waters of Egypt and Israel, increasing the likelihood that the pool extends into Lebanese waters as well, but nothing has happened in Lebanon. The process has come to a halt.

 

Why Lebanon hasn’t been able to capitalize on its natural gas

The country has been without a president since May 2014 because the two major factions in its parliament–the Sunni-led bloc known as the March 14 Alliance and the rival Shiite group dominated by the Hezbollah militia–have been unable to agree on a candidate. According to several reports in the energy trade press, international energy companies big enough to take on the deepwater drilling challenge off Lebanon’s coast have been unwilling to make any commitments in an atmosphere of such instability. Parliament would need to approve two decrees before any leases could be auctioned, one regional energy expert reported, and the legislature cannot act in the absence of a president.

“I would say that until a political solution is in place it is unlikely anything will move ahead” on exploration and production, one analyst said, adding that it might take resolution of the war in Syria, where Hezbollah supports President Bashar al-Assad, to break out of the political deadlock in Lebanon.

Low prices have hurt the country’s drilling prospects

Meanwhile, natural gas prices have plummeted in a worldwide glut, making it unlikely that any major firm could commit itself in the near future to an expensive new drilling project such as Lebanon’s. The hydrocarbon industry functions in a constantly shifting price environment, in which high prices encourage exploration, but when that exploration brings new fields on line, the subsequent price drop results in shut-in wells and laid-off workers. Then short supplies send prices back up and the cycle repeats itself.

With a population of only 6.2 million, not including the refugees, Lebanon alone could not use all the natural gas that might be produced if, as geologists believe, it does have major offshore resources comparable to those in Israel and Egypt. It would probably seek to export its surplus gas to help pay for public services and aid to the refugees, but here again it is potentially a victim of the troubles plaguing its neighbors.

There is no adjacent country to which Lebanese gas could be shipped by pipeline, especially now that the bottom has dropped out of Syria. Lebanon would have to export its gas by sea in order to cash in. But natural gas must be liquefied to be transported in specially-built tankers, and Lebanon has no facilities to do so. Even if it did, it would have to compete in the world market with lower-cost suppliers in other countries, including the United States, where the price of gas it at its lowest in nearly four years.

The government could net more than $600 billion over time

Lebanon has no proven onshore reserves of gas or oil and must import all its energy sources. But offshore, the Ministry of Energy and Water has suggested the potential existence of 96 trillion cubic feet of gas reserves and 865 million barrels of oil, which, according to a survey carried out by the Lebanese Bank Audi, could net the government more than $600 billion over time. More conservative estimates hypothesize the existence of 25 trillion cubic feet of gas reserves, which still would be a useful find. But even if the political impasse were broken tomorrow, the violence subsided in Syria, the price of gas edged back up, and energy companies found the reserves they believe are there, it would take several years for production and transportation of gas to begin. Every delay is costly.

Lebanon has demonstrated remarkable resiliency during these decades of turmoil; investors are still putting up new hotels and office buildings, and the New York Times recently reported on the renovation and construction of ambitious museums in Beirut. But in the short and medium term its prospects are not improving. Promising young people are leaving, and the paralysis in the government is taking its toll, as residents of the capital saw up close the other day when heavy rain washed uncollected garbage through the streets.

If Lebanon is going to save itself and have a viable future amid the region’s chronic instability, it should start by setting aside its factional rivalries at least long enough to install a president and get a belated start on development of its energy resources.