lebanon: the next eastern mediterranean gas producer?

7/26/2019 Lebanon: The Next Eastern Mediterranean Gas Producer?

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FOREIGN AND SECURITY POLICY PAPER SERIES 2015

LEBANON: THE NEXT EASTERN

MEDITERRANEAN GAS PRODUCER?

Bassam Fattouh

Laura El-Katiri
http://www.gmfus.org/


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Cover photo: Te sun sets behind ancient columns at Al-Mina Archaeological Site in yre, Lebanon. Joel Carillet/istockphoto
http://www.gmfus.org/programs/climate-energyhttp://www.gmfus.org/programs/climate-energy


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M P S

F

Bassam Fattouh1and Laura El-Katiri2

1 Bassam Fattouh is the director of the Oxford Institute for Energy Studies and professor at the School of Oriental andAfrican Studies, University of London. He has published a variety of articles on the international oil pricing system, OPECpricing power, security of Middle Eastern oil supplies, and the dynamics of oil prices and oil price dif ferentials in EnergyEconomics, The Energy Journal, and Energy Policy.2 Laura El-Katiri is a research fellow with the Oil and the Middle East Programme at the Oxford Institute for Energy Studies(OIES). Her primary research focuses on energy policy and the management of natural resource wealth in resource-richeconomies, particularly in the Middle East and North Africa. She has published widely on issues including oil and develop-ment in the Arab world, domestic energy market and pricing reform, and energy poverty.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Challenges Facing the Gas Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Managing Hydrocarbon Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Lebanons Domestic Gas Demand and Interim Gas Import Options . . . . . . . . . . . 10

Lebanon, the Eastern Mediterranean, and Global Gas Markets. . . . . . . . . . . . . . . 13

Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15


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1I

Lebanons exclusive economic zone (EEZ)forms part of the Levant Basin,1which hasbeen estimated to hold up to 122 trillion

cubic feet (3.45 trillion cubic meters) of recover-able natural gas, in addition to some 1.7 billionbarrels of recoverable oil.2Lebanons seabed couldcontain significant hydrocarbon potential, with aninitial estimate of up to 30 trillion cubic feet (tcf) ofnatural gas (around 850 billion cubic meters) and660 million barrels of oil.3 Jibran Basil, then actingminister of energy, raised these estimates to 95.5 tcfof natural gas and up to 865 million barrels of oil in

October 2013, although no exploratory drilling hadbeen conducted.4 However Spectrum, a Norwegiancompany that carried out Lebanons first 3D seismicsurvey in August 2012, has estimated the countrysrecoverable offshore gas reserves at 25.4 tcf.5 Clearlythese different estimates involve considerableuncertainty.

The development of its hydrocarbon reserveswould enable Lebanon to reduce its dependence onimports of oil products, which in 2012 constitutedmore than 97 percent of its total primary energysupplies.6In 2013, Lebanons imports of oil and itsderivatives amounted to $5.11 billion, representing11.4 percent of its GDP.7

1 The Levant Basin is bordered by Turkey, Syria, Lebanon, Israel, theGaza Strip, Egypt, and L ibya.

2 Assessment of Undiscovered Oil and Gas Resources of the LevantBasin Province, Eastern Mediterranean, U.S. Geological Survey (2010),http://pubs.usgs.gov/fs/2010/3014/pdf/FS10-3014.pdf.

3 Lebanon says gas, oil reserves may be higher than thought, Reuters(2013), http://www.reuters.com/article/2013/10/27/us-meast-investment-lebanon-idUSBRE99Q07L20131027 .

4 ibid.

5 Josh Wood, Lebanon Pins Economic Hopes on Oil and Gas,

The New York Times(2013), http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0.

6 Lebanon: Balances for 2012, International Energy Agency (2012),http://www.iea.org/statistics/statisticssearch/report/?year=2012&country=LEBANON&product=Balances

7 Mirna Chami, Lebanons Trade Activity in 2013 Highlights a HecticYear, Blominvest Bank (2014), http://blog.blominvestbank.com/lebanons-trade-activity-in-2013-highlights-a-hectic-year/.

The government is keen to diversify Lebanonsenergy mix away from oil to strengthen its secu-rity of supply and to reduce air pollution. But gasproduction is not likely to begin before the mid-2020s. Until then, Lebanon would need to importall its gas requirements in order to increase theshare of natural gas in the energy mix. The govern-ment has announced plans to import liquefiednatural gas (LNG) to replace fuel oil in powergeneration, although at present the country has noregasification terminal and no contract to buildand operate one has been signed. Lebanon has

two combined cycle gas turbine (CCGT) plants inoperation, with a combined nominal generationcapacity of 870 megawatts, accounting for about50 percent of the countrys total installed capacity.These newly constructed plants, however, have notbeen operating optimally because of gas shortages.

Figure 1: The Arab Gas Pipeline

Source: U.S. Energy Information Administration, Eastern

Mediterranean Region Country Analysis Brief (August 2013)
http://pubs.usgs.gov/fs/2010/3014/pdf/FS10-3014.pdfhttp://www.reuters.com/article/2013/10/27/us-meast-investment-lebanon-idUSBRE99Q07L20131027http://www.reuters.com/article/2013/10/27/us-meast-investment-lebanon-idUSBRE99Q07L20131027http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.iea.org/statistics/statisticssearch/report/?year=2012&country=LEBANON&product=Balanceshttp://www.iea.org/statistics/statisticssearch/report/?year=2012&country=LEBANON&product=Balanceshttp://blog.blominvestbank.com/lebanons-trade-activity-in-2013-highlights-a-hectic-year/http://blog.blominvestbank.com/lebanons-trade-activity-in-2013-highlights-a-hectic-year/http://blog.blominvestbank.com/lebanons-trade-activity-in-2013-highlights-a-hectic-year/http://blog.blominvestbank.com/lebanons-trade-activity-in-2013-highlights-a-hectic-year/http://www.iea.org/statistics/statisticssearch/report/?year=2012&country=LEBANON&product=Balanceshttp://www.iea.org/statistics/statisticssearch/report/?year=2012&country=LEBANON&product=Balanceshttp://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.nytimes.com/2013/04/18/world/middleeast/lebanon-pins-economic-hopes-on-oil-and-gas.html?pagewanted=all&_r=0http://www.reuters.com/article/2013/10/27/us-meast-investment-lebanon-idUSBRE99Q07L20131027http://www.reuters.com/article/2013/10/27/us-meast-investment-lebanon-idUSBRE99Q07L20131027http://pubs.usgs.gov/fs/2010/3014/pdf/FS10-3014.pdf


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T G M F U S2

Currently, the share of natural gas in the fuel mix of

the power sector has fallen to zero.

The commercial development of Lebanons hydro-

carbon reserves faces many internal and external

challenges. Lebanons hydrocarbon sector and its

institutional and regulatory framework are still

in their infancy. Deadlock in Lebanons sectarian

political system has led to long delays in the

countrys hydrocarbon development and produced

a volatile regulatory environment. The country

suffers from weak administration, widespread

corruption, and a poor business climate. As yet,

Lebanon has no proven gas reserves, and until 2005it did not have any gas infrastructure at all.

Natural gas entered the energy mix for the first

time in 2009 when the Arab Gas Pipeline (AGP, see

Figure 1) started supplying Egyptian gas to Israel,

Jordan, Lebanon, and Syria. The flow of Egyptian

gas was frequently disrupted because of delayed

government payments and attacks on the pipe-

line in Sinai. The last delivery of Egyptian gas to

Lebanon was in November 2010. Lebanons delimi-

tation dispute with Israel, with which it is formally

in a state of war, further complicates the prospects

for its offshore gas sector.8Lebanons faltering

economy could benefit from the development of the

countrys offshore hydrocarbon reserves, provided

they are wisely managed, taking into account best

international practice.

However various sources of vulnerability remain

including:

a high level of sovereign debt that has required

repeated rescheduling;

8 Tullio Scovazzi, Maritime Boundaries in the East Mediterranean Sea,

The German Marshall Fund of the United States, Eastern Mediterranean

Energy Project (2012), http://www.gmfus.org/wp-content/blogs.dir/1/

files_mf/1339504227Scovazzi_MaritimeBoundaries_Jun12.pdf.

Figure 2: Blocks and Seabed Depth

Source: Lebanese Petroleum Administration data
http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1339504227Scovazzi_MaritimeBoundaries_Jun12.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1339504227Scovazzi_MaritimeBoundaries_Jun12.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1339504227Scovazzi_MaritimeBoundaries_Jun12.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1339504227Scovazzi_MaritimeBoundaries_Jun12.pdf


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large interest payments, which crowd outpriority spending and capital expenditure;

a banking system whose stability hinges on the

governments ability to service its debt;

a persistent current account deficit whose

financing relies on foreign deposits and remit-

tances; and

a persistent government deficit that will keep

the debt-to-GDP ratio at high levels for the

foreseeable future.

Lebanons economy also suffers from an over-valued exchange rate underpinned by the Lebanese

pounds peg to the U.S. dollar, which is consid-

ered essential for financial stability. Lebanon has

sustained repeated internal and external shocks

over the past three decades but has managed

nonetheless to maintain overall macro-economic

stability.


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T G M F U S4

The LPA has been

unable to perform

its tasks without

interference and

is affected by the

countrys political

deadlock.

The discovery of gas deposits offshore Gaza,Israel, and Cyprus9over the past decadeprompted Lebanon to conduct comprehen-

sive 2D and 3D seismic surveys of its own EEZ.10Israels discovery of the 9 tcf Tamar field in 2009,followed by the 19 tcf Leviathan field in 2010, aswell as several smaller fields, and Cyprus discoveryof Aphrodite in 2011, probably containing up to 4-5tcf, prompted Lebanon to accelerate exploration.11

Lebanon adopted the Offshore PetroleumResources Law in August 2010 (Law 132), whichprovides the legal and institutional framework for

the exploration and exploitation of offshore oiland gas resources in Lebanon.12This was followedin April 2012 by Decree 7968/2012, establishingthe Lebanese Petroleum Administration (LPA) asthe body responsible for the management, moni-toring, and supervision of petroleum activities,including the issuing of licenses and the implemen-tation of agreements. The LPA, however, is not anautonomous body and falls under the tutelage ofthe Ministry of Energy and Water Resources and,indirectly, is reliant on the Council of Ministers forkey decisions regarding the hydrocarbon sector.13Thus the LPA has been unable to perform its tasks

9 Hakim Darbouche, Laura El-Katiri, and Bassam Fattouh, EastMediterranean Gas: What Kind of Game Changer? Oxford Institute forEnergy Studies,OIES Paper NG 71, 2012.

10 A number of companies have been acquiring data in offshore Lebanon.In 1993, 2D seismic surveys covering 508 linear kilometers off Tripoliwere acquired by Geco Prakla. Spectrum (a Norwegian company thatprovides seismic surveys) dataset includes 3D seismic surveys covering5,360 km (2012-13) and 5,172 linear km of 2D (2000-02). PetroleumGeoServices (also a Norwegian company) data sets includes 3D seismicsurveys covering 9,700 km (2008-11) and 9,700 linear km of 2D (2006-2012) seismic data. For more information, see Lebanese PetroleumAdministration, http://www.lpa.gov.lb.

11

Brenda Schaffer, Israel New natural gas producer in the Mediter-ranean, Energy Policy39 (2011), pp. 537987; Walid Khadduri, EastMediterranean energy plans taking shape,MEES55, 2012; Authors inter-

views, March to July 2014.

12 For this and other relevant laws, see Lebanese Petroleum Administra-tion, http://www.lpa.gov.lb.

13 The LPA acts as an advisory body, with the Minister of Energy andWater Resources playing the overriding role. The minister in turn has toobtain the endorsement of the Council of Ministers for key decisions.

without interference and is affected by the countryspolitical deadlock.

After months of political infighting betweenthe various factions, the government eventuallyappointed the six members of the LPA in December2012.14They were chosen along sectarian lines.In February 2013, the government issued Decree10289/2013, setting out the Petroleum ActivitiesRegulations for Lebanon, which provide the basicguidelines for Lebanons hydrocarbon sector. Thedecree stipulates requirements for license applica-tions and the scope of agreements with energy

companies.

The appointment of the members of the LPA andthe passing of these decrees paved the way for thelaunch of a prequalification round at the begin-ning of 2013.15The response to the governmentscall for expressions of interest demonstrates thecommercial attractiveness of Lebanons potentialoffshore energy resources for international inves-tors. Some 50 international companies registeredinterest, including several major oil companies(IOCs), such as Total, ENI, Shell, Statoil, Chevron,

and ExxonMobil. Forty-six companies were quali-fied, including 12 operators. The initial interest inLebanons first bidding round was high, especiallywhen compared to earlier bidding rounds in Israeland Cyprus, which faced political constraints.

14 The board of directors was appointed by virtue of Decree No. 9438,issued in December 2012.

15 The prequalification phase calling on companies to participate inoffshore licensing rounds was set out in Decree No. 9882, issued onFebruary 16, 2013. Decree No. 9882/2013 specifies the conditions forprequalification that both operators and non-operators must meet, as welas the requirements of the prequalification phase.

2R D
http://www.lpa.gov.lb/http://www.lpa.gov.lb/http://www.lpa.gov.lb/http://www.lpa.gov.lb/


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3C F G S

Delayed decision-

making and inadeq

administrative capa

cast doubt on the g

of starting producti

the end of this deca

The outlook for Lebanon, however, is highlyuncertain. Delayed decision-making andinadequate administrative capacity cast doubt

on the goal of starting production by the end ofthis decade. The prolonged failure of the Lebaneseparliament to elect a new president and the forma-tion in February 2014 of an unstable governmentmade up of rival political groups has paralyzed thedecision-making process. As of February 2015, theLebanese government has failed to pass two decreesthat are essential for tendering Lebanons offshoreacreage.

One of the missing decrees would delimit Lebanonsterritorial sea and exclusive economic zone,16anawkward matter as some blocks straddle a disputedarea between Lebanon and Israel. The other decreewould stipulate the provisions of future Explora-tion and Production Agreements (EPA).17The EPAdetermines the way in which future revenues are tobe shared between the state and the investors thatprovide capital, technology, and expertise.18

The draft decree has been criticized, especiallyregarding two key fiscal parameters the cost

recovery and profit-sharing provisions as well asthe minimum profit-sharing parameter, on whichinvesting consortiums may bid. These provisionswould add a further administrative burden to Leba-nons already overstretched bureaucratic system,complicate revenue forecasting, and create scopefor future renegotiation of fiscal terms if discov-eries prove smaller than expected or uneconomic

16 For updates on Lebanons ongoing bidding round, see Lebanese Petro-leum Administration, http://www.lpa.gov.lb.

17 A draft proposal, reportedly combining production-sharing contractswith royalties paid to central government, was presented for consultation

with bidding companies in 2013.This will be followed by the painstakingtask of responding to and negotiating fiscal amendments, and obtainingapproval by the relevant ministries.

18 For a general background, see IMF, Fiscal Regimes for ExtractiveIndustries: Design and Implementation, 2012, http://www.imf.org/external/np/pp/eng/2012/081512.pdf; Daniel Johnston, Internationalpetroleum fiscal systems, United Nations Development Program, UNDPDiscussion Paper No. 6, http://www.un.org.kh/undp/images/stories/special-pages/extractive-industries/docs/fiscal_systems_eng.pdf.

to develop.19

Other causes for concern includeprovisions that require not less than 80 percentof the aggregate number of employees of the RightHolders to be Lebanese (EPA draft as of April2014, Art. 20)20 a requirement unlikely to bemet given the shortage of qualified workers in thecountry.

The failure to pass these two decrees illustrates 1)Lebanons complex domestic political landscape,which affects the decision-making process, thequality of institutions, the efficiency of publicadministration, and the business environment, and

2) the difficulty of delimiting Lebanons EEZ, inlight of the dispute with Israel, which could escalateif either country decided to award blocks in thedisputed area.21

Domestic Political Factors

Lebanons political scene is dominated by contin-uous conflict over the distribution of politicalpower and economic resources among sectariangroups. This often paralyzes parts of the politicalsystem, including the legislative body, resultingin long delays in decision-making. The LebaneseParliament may delay voting on key issues for yearsuntil consensus is reached. Similar delays occurwithin the Council of Ministers, the executive bodyresponsible, inter alia, for adopting and imple-menting decrees related to the energy sector. Leba-nons first bidding round was delayed as no stablepolitical coalition could be formed in 2012-13. Anew government took office early in 2014, but hasso far failed to approve the decrees indispensable tolaunching the first bidding round.

19 Carole Nakhle, Licensing and Upstream Petroleum Fiscal Regime:Assessing Lebanon Choices.Beirut: The Lebanese Center for PolicyStudies, 2015 (forthcoming).

20 Quoted in Nakhle, 2015 (forthcoming).

21 The influential speaker of the parliament, Nabih Berri has repeatedlycalled for offering for tender al l ten of the blocks off Lebanons coast andletting the companies choose five, in order to generate the best offers.However, this position is not widely supported.
http://www.lpa.gov.lb/http://www.imf.org/external/np/pp/eng/2012/081512.pdfhttp://www.imf.org/external/np/pp/eng/2012/081512.pdfhttp://www.un.org.kh/undp/images/stories/special-pages/extractive-industries/docs/fiscal_systems_eng.pdfhttp://www.un.org.kh/undp/images/stories/special-pages/extractive-industries/docs/fiscal_systems_eng.pdfhttp://www.un.org.kh/undp/images/stories/special-pages/extractive-industries/docs/fiscal_systems_eng.pdfhttp://www.un.org.kh/undp/images/stories/special-pages/extractive-industries/docs/fiscal_systems_eng.pdfhttp://www.imf.org/external/np/pp/eng/2012/081512.pdfhttp://www.imf.org/external/np/pp/eng/2012/081512.pdfhttp://www.lpa.gov.lb/


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T G M F U S6

Another source of delay is theLebanese allotment state (dawlatal-muhasasa) in which fiercestruggles over the building of stateinstitutions coexist with an utterdisregard for the universal applica-tion of institutional rules and thecountrys political class divideshighly prized resources, opportuni-ties, and privileges accruing fromthe state and its prerogatives amongthemselves and their allies and, to

some extent, they pass it on to their(sectarian) constituencies to ensuretheir continued political support.22

The sectarian political systempermeates all institutional struc-tures and administrative bodies,which are populated by politicallyappointed bureaucrats, erodingpublic trust in the states institu-tions and limiting their effec-tiveness. As a result, Lebanonsuffers from a poor institutionalframework, a weak businessenvironment, administrative inefficiencies, lack ofaccountability, and political deadlock, even where

vital interests, such as exploration for oil and gasresources, are at stake. This political structure alsoencourages corruption and rent-seeking behavior.Transparency Internationals Corruption Percep-tions Index23indicates the widespread nature ofcorruption among Lebanese government institu-tions, public and private sector enterprises, and

22 Reinoud Leenders. Spoils of Oil? Assessing and Mitigating the Risks ofCorruption in Lebanons Emerging Offshore Petroleum Sector. Beirut: TheLebanese Center for Policy Studies, 2014/2015 (forthcoming).

23 Transparency Internationals Corruption Perceptions Index can beaccessed at http://www.transparency.org/ . In 2014, Lebanon was ranked136 out of 175 on the Corruption Perception Index.

society at large, with a continuous deterioration inrecent years.24

The weak institutional and administrative frame-work also results in a wide gap between declaredgovernment plans and actual delivery. The parlia-ment and government have been slow to adoptand implement legislation to kick-start the sectorbut Lebanese politicians have created exagger-ated expectations over the future of oil and gas inLebanon. Billboards sponsored by the Ministry ofEnergy and Water have been erected along high-

ways promising better transportation networks,a better healthcare system, more jobs, and even abetter-equipped army, all to be funded by hydro-carbon wealth. Jibran Basil, the energy minister,


Figure 3: The Eastern Mediterranean Region

Source: Oxford Institute for Energy Studies
http://www.transparency.org/http://www.transparency.org/


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L: T N E M G P 7

claimed in February 2013 that Lebanon would beable to start exporting natural gas within fouryears, that is by 2017 a timeline that is unat-tainable even under the most favorable scenario.The gap between promise and delivery is likely toaffect perceptions by IOCs of Lebanons reliabilityas a partner in implementing high-risk investmentprojects.

Politically determined delays are also preventingLebanon from developing an overall system ofgovernance for its energy sector, which wouldencourage balanced economic development,

without excessive dependence on the hydrocar-bons sector and a loss of economic diversity.Thisis one of the main challenges facing a new energyproducer. However, it is unlikely that best prac-tice, as developed, for example, in Norway, can beimplemented in the Lebanese context.

Maritime Delimitation with Israel

The overlapping Lebanese and Israeli maritimeclaims over some 854 square kilometers are anotherpotential constraint on exploration and production,

and carry the risk of escalation. If exploration wereto go ahead in this disputed area, and especially ifsignificant resources were discovered, incidents atsea and further escalation could occur.

There are precedents for trans-boundary naturalresource sharing initiatives concerning oil andnatural gas. However, such options do not applyto states that do not recognize each others bordersand are technically at war. Lebanon still does notrecognize the state of Israel.

There have been informal efforts by the United

States to prevent the delimitation dispute frombecoming an additional source of tension betweenthe two countries. U.S. diplomatic efforts havecentered on discouraging Israel and Lebanonfrom exploring the disputed area until a solutionis reached.25So far, both countries have avoidedexploring or awarding contracts in the disputedarea, reflecting their desire to avoid escalation.However political developments could reignite thedispute at any time.

25 Beirut to Delay Bids,MEES 57, 2012.


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T G M F U S8

4M H R

The Lebanese government needs to put aframework in place for managing futurehydrocarbon revenues, well before these

revenues materialize.26The Offshore PetroleumLaw requires part of these revenues to be placed ina fund for the benefit of future generations. Article3 of the law stipulates that the statute regulatingthe Fund, the rules for its specific management, theprinciples of investment and use of proceeds shallbe regulated by a specific law, based on clear andtransparent principles for investment, and use ofproceeds that shall keep the capital and part of the

proceeds in an investment fund for future genera-tions, leaving the other part to be spent accordingto standards that will guarantee the rights of thestate and avoid serious, short- or long-term nega-tive economic consequences.27

The initial policy priority for Lebanon, whenrevenues from energy production begin to flow,will be to reduce the states debt, estimated at 146percent of GDP in 2014, beginning with the mostrisky liabilities: external debt denominated inforeign currency. Such liabilities, especially whenthey are short term, expose the domestic economyto external market shocks. The World Bank empha-sizes the benefits of a sharp drop in the countrysdebt levels, which would lower the sovereignrisk premium and hence reduce the cost of theremaining public debt.28An improved sovereigndebt rating would also lower interest rates for theprivate sector, raising the competitiveness of theeconomy and potentially boosting growth.

26 Oil and Gas in Lebanon 2014, BankMed(2014),http://www.

bankmed.com.lb/LinkClick.aspx?fileticket=_Sfjx3YcF80%3D&portalid=0.Present estimates of future revenues are highly speculative.

27 World Bank, Lebanon Economic Monitor: A Sluggish Economy in aHighly Volatile Environment, Spring 2014.

28 The World Bank (2014) calculates that a reduction in Lebanonsdebt-to-GDP ratio to 100 percent would reduce the interest cost of theremaining debt. If the risk premium on Lebanons debt were reduced by100 basis points, this would save the annual budget 1 percent of GDP (orUS$4.4 billion every year based on 2014 GDP).

While debt reduction would bring economicbenefits, there are risks associated with this strategyIf a significant part of natural resource revenues areabsorbed into the national accounts, with a lack oftransparency, there is a major risk of voracity effectsand rent-seeking behavior. In any event, usingresource revenues to reduce public debt may not bepolitically feasible and may face public resistance,as expectations have been raised of the availabilityof future financial resources for public expendi-ture. There is also a risk that lower interest rates,resulting from reduced debt levels, would provide

an incentive for borrowing, producing a creditbubble.

Consideration has also been given to a cash hand-out scheme, in the absence of a functioning socialtransfer system. But such a scheme would involve ahigh level of moral hazard and be subject to abuse.Furthermore, if the cash handouts were sizeableenough to undermine politicians patronage, thereare no a priori reasons to believe that public deci-sion-makers would cooperate and this way bankrollthemselves out of office.29

Lebanon should avoid distributing future resourcerevenues as energy subsidies since these distortpricing signals and result in misallocation ofresources. Although energy subsidies constitutean important social safety net for the poor, theyare regressive in nature because in many instancesricher households capture the bulk of subsidies.Energy subsidies also have a negative environ-mental impact by encouraging wasteful consump-tion of fossil fuels. Once energy subsidies are intro-duced, they are very difficult to reverse, reducingmacroeconomic policy flexibility.

There is scope for increasing public investmentin infrastructure such as electricity and transport.Infrastructure constraints pose a serious barrier to


The Lebanese

government needs to

put a framework in

place for managing

future hydrocarbon

revenues, well before

these revenuesmaterialize.
http://www.bankmed.com.lb/LinkClick.aspx?fileticket=_Sfjx3YcF80%3D&portalid=0http://www.bankmed.com.lb/LinkClick.aspx?fileticket=_Sfjx3YcF80%3D&portalid=0http://www.bankmed.com.lb/LinkClick.aspx?fileticket=_Sfjx3YcF80%3D&portalid=0http://www.bankmed.com.lb/LinkClick.aspx?fileticket=_Sfjx3YcF80%3D&portalid=0


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competitiveness. Investment in public infrastruc-ture would yield a relatively high rate of return andbenefit the population. But the quality of publicspending is critical. If public investment is directedtoward poor quality projects or affected by corrup-tion, there would be few benefits for the economyor the public at large.

In the period before offshore resources come onstream, which could be a decade or more, it is

important to work out a balanced strategy formanaging the resulting revenues. Under existinglegislation, part of the revenues must be set asidein an investment fund for future generations. Theresidue should be used for debt reduction, publicinvestment, and transfer payments. Meanwhile,public expectations should be gradually lowered toallow policymakers to take realistic decisions in asupportive political climate.


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Meeting domestic

demand, especially in

e power sector, should

be the top priority in

government policy.

If exploratory drilling confirms commerciallyrecoverable offshore resources in Lebanon, thebalance between the use of gas to meet domestic

demand and for export will need to be determined.Meeting domestic demand, especially in the powersector, should be the top priority in governmentpolicy. The Ministry of Energy has estimated thatat a price of $90 per barrel, Lebanon could makea saving of $1.9 billion on its annual fuel bill if itswitches its power generation to gas.30In additionto these savings, such a policy would bring substan-tial environmental benefits.

The 2010 Ministry of Energy and Water PolicyPaper for the Electricity Sector, endorsed by theCouncil of Ministers, includes a plan to supplyaround 12 percent of the fuel mix from renewableenergy sources, to use natural gas for two-thirds ofthe fuel mix, and to increase the installed capacityto 4,000 MW by 2014 and 5,000 MW by 2020. Itis estimated that the implementation of this planwould reduce greenhouse gas emissions up to177,912 Gg of CO2eq between 2011 and 2030.31

In order to achieve these gains, however, the

government should have a clear policy regardingthe pricing of gas for the domestic market. This hasthe potential to be a contentious issue with energycompanies. Since gas demand is strongly linked toelectricity demand, it is essential that the govern-ment embark on the reform of the power sector andof electricity prices.

lectricit Du Liban (EdL), the countrys principalpower utility, suffers from very large financial andoperating losses, which constitute between 20 and25 percent of the governments primary expendi-

30 Lebanon Faces Obstacles to LNG Imports,MEES 56, 2013.

31 Ministry of Environment, Lebanons Second National Communica-tion to the UNFCCC, 2011, http://unfccc.int/resource/docs/natc/lbnnc2.pdf

ture.32

EdL also suffers from chronic underinvest-ment, which has, until now, prevented it frommodernizing its grid and expanding power genera-tion capacity.33

Increasing the proportion of gas in the power mixwould require heavy investment in the gas grid,including the planned project to build a 173 km,36-inch coastal gas pipeline connecting a plannedstorage terminal onshore near the future FloatingStorage Regasification Unit (FSRU) to Tyre insouthern Lebanon, allowing all of Lebanons majorpower plants to tap the gas supply. However, this

project faces many hurdles including land recla-mation and finding the necessary funding for itsconstruction. There is a risk that gas might come onstream without the government having put in placethe necessary infrastructure onshore to transport it.

Meanwhile, Lebanon needs to ensure interimsupplies of natural gas for its power plants, if thegovernments plan to switch from heavy fuel oil togas is to be realized. As mentioned earlier, Lebanonno longer receives pipeline gas from Egypt.

In 2003, the government of Lebanon signed a

25-year contract with Syria to import around 1.5bcm of natural gas per year.34The Gasyle pipeline,a 32-km pipeline with capacity of 3 million cubicmetres per day connecting the Syrian border tothe Beddawi power plant, was completed in 2005.However, Syria has not been able to supply Lebanonwith gas, as its gas production has been insuf-ficient to meet domestic demand, and persistent

32 A press report suggests that out of the $2 billion annual losses incurredby EDL, nearly 15 percent is due to theft and technical losses and theremainder is due to the high cost of fuel. For further details, see EDLtests smart meters to prevent electricity theft, The Daily Star(2013),

http://dailystar.com.lb/SearchArticles.aspx?search=EDL%20tests%20smart%20meters%20to%20prevent%20electricity%20theft

33 See World Bank, Republic of Lebanon Electricity Sector PublicExpenditure Review, Report No. 41421-LB(2008),https://openknowl-edge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1cosed0April01502008.pdf?sequence=1.

34 World Bank, Republic of Lebanon Hydrocarbon Strategy Study,Report No. 29579-LE(2004), https://openknowledge.worldbank.org/bitstream/handle/10986/15684/295790LE.pdf?sequence=1

5L D G D

I G I O
http://unfccc.int/resource/docs/natc/lbnnc2.pdfhttp://unfccc.int/resource/docs/natc/lbnnc2.pdfhttp://dailystar.com.lb/SearchArticles.aspx?search=EDL%20tests%20smart%20meters%20to%20prevent%20electricity%20thefthttp://dailystar.com.lb/SearchArticles.aspx?search=EDL%20tests%20smart%20meters%20to%20prevent%20electricity%20thefthttps://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/15684/295790LE.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/15684/295790LE.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/15684/295790LE.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/15684/295790LE.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1https://openknowledge.worldbank.org/bitstream/handle/10986/7990/414210REPLACEM1closed0April01502008.pdf?sequence=1http://dailystar.com.lb/SearchArticles.aspx?search=EDL%20tests%20smart%20meters%20to%20prevent%20electricity%20thefthttp://dailystar.com.lb/SearchArticles.aspx?search=EDL%20tests%20smart%20meters%20to%20prevent%20electricity%20thefthttp://unfccc.int/resource/docs/natc/lbnnc2.pdfhttp://unfccc.int/resource/docs/natc/lbnnc2.pdf


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Figure 4: Lebanon Power Stations and Proposed Gas

Infrastructure

Source: Poten & Partners

civil conflict has cast doubt on Syrias ability toincrease its natural gas output.

Lebanons lowest-cost option in commercialterms would be to secure pipeline gas fromIsrael. Despite adjacent gas reserves poten-tially available for export from Israel, thisoption is not politically feasible as there areno direct trade ties or diplomatic relationsbetween the two countries.35

Iran is a potential gas supplier to Lebanon.36A pipeline project carrying up to 25 bcm of

Iranian gas to neighboring Iraq and Syria(the Islamic pipeline) could have becomea lifeline for Lebanons power sector. But theinternational sanctions regime against Iran,coupled with insufficient gas productionwithin Iran to export additional quantities,has cast doubt over this option.37Since itsannounced construction launch in November2012,38the project has suffered from fundingand practical above-ground problems relatedto the security situation in Iraq and Syria.

Given Lebanons limited opportunities for

securing pipeline gas imports from neigh-boring countries, LNG remains the countrys onlyoption. LNG has been considered as an optionsince the 1990s, but the high initial constructioncosts of an onshore regasification terminal switchedpolicy efforts toward securing lower-cost regionalpipeline gas imports.39

35 The Israeli Cabinets decree from June 2013 (together with otherissues), reserves some 20 bcm of natural gas from Israels offshore fieldsfor immediate, regional exports; this includes gas from the Tamar field,which is already onstream.

36 Lebanon approves plans for NorthSouth gas pipeline,MEES 55(2012), pp. 18-19.

37 Sara Vakhshouri, Sanctions Raise Questions about Irans ExportCapacity,MEES 55, 2012.

38 Iran starts construction of IranIraqSyria gas pipeline, Zawya(2012), https://www.zawya.com/story/IranIraq_pipeline_ready_for_gas_exports-ZAWYA20140823065709/ .

39 Lebanon Revisits LNG Import Plan,LNG Intelligence, 2013.

Lebanon revived the LNG import option in 2013.40In December 2013, the Ministry of Water andEnergy issued a tender to import LNG to replacefuel oil in power generation. The tender is part ofa project involving the construction of a FloatingStorage Regasification Unit (FSRU). Thirteencompanies responded to the Ministry of Energyand Waters tender. The winner will be awardeda 12-year supply contract. Lebanon intends tostart importing around 1.2 million metric tonsper annum (mtpa) of LNG by 2016, a figure that

is expected to reach 3.5 mtpa by 2022, cutting thecountrys energy bill and generating a savings of an

40 Lebanons Economy Hit by Power Crisis and Syrian Turmoil,MEES55 (2012); Lebanon Revisits LNG Import Plan, LNG Intelligence(2013);Lebanon LNG imports a distant prospect amid bidding confusion,

MEES56, 2013.
https://www.zawya.com/story/IranIraq_pipeline_ready_for_gas_exports-ZAWYA20140823065709/https://www.zawya.com/story/IranIraq_pipeline_ready_for_gas_exports-ZAWYA20140823065709/https://www.zawya.com/story/IranIraq_pipeline_ready_for_gas_exports-ZAWYA20140823065709/https://www.zawya.com/story/IranIraq_pipeline_ready_for_gas_exports-ZAWYA20140823065709/


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T G M F U S12

estimated $1 billion per year.41

However, the planfor importing LNG by 2016 is unrealistic, as littleprogress has been made in terms of awarding thecontract.

41 Lebanon: LNG import tender & FSRU tender confirm business asusual at the MOEW, Lebanon: The Oil & Gas Report(2014), http://www.mesp.me/2014/02/09/lebanon-the-oil-gas-report-february-10-2014/.
http://www.mesp.me/2014/02/09/lebanon-the-oil-gas-report-february-10-2014/http://www.mesp.me/2014/02/09/lebanon-the-oil-gas-report-february-10-2014/http://www.mesp.me/2014/02/09/lebanon-the-oil-gas-report-february-10-2014/http://www.mesp.me/2014/02/09/lebanon-the-oil-gas-report-february-10-2014/


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The timing of the fir

Lebanese gas expo

is important in view

gas market dynam

Continued delays c

close various mark

opportunities for thcountry.

Lebanons location in the Eastern Mediter-ranean, with good coastal and land access,gives it a natural advantage for gas exports.42

The border with Israel is closed but Lebanon hasa number of other regional trading options.43Thepotential for exports will be critical for securinginitial interest by foreign investors.44

Lebanons eventual export strategies will dependon the size of its reserves, domestic and foreigndemand, export targets, the cost of Lebanese gasproduction, price, and competition, as well as theavailability of finance for pipelines or LNG facilities

to bring the gas to market. Assessments of politicaland economic risk will affect the willingness ofinvestors to finance the necessary offshore andonshore infrastructure.

The timing of the first Lebanese gas exportsis important in view of gas market dynamics.Continued delays could close various marketopportunities for the country. The commercialpotential of regional exports to Egypt and Jordan isattractive but Israel may have a first-mover advan-tage if it overcomes present regulatory and political

obstacles.45

Lebanon LNG and the Regional Gas Hub Option

Because of its flexibility, LNG is probably the mostattractive export option, both for the governmentand for international investors, provided sufficientquantities of gas are available.46Lebanons initialLNG potential could amount to 5 to 10 mtpa

42 Bassam Fattouh and Laura El-Katiri, Lebanons Gas Trading Options,Beirut: The Lebanese Center for Policy Studies, 2015 (forthcoming).

43 Laura El-Katiri, Bassam Fattouh, and Hakim Darbouche, East Mediter-ranean Gas: What Kind of Game Changer?Oxford: Oxford Institute for

Energy Studies, 2012.44 See discussion above.

45 Noble Energy prefers selling Leviathan gas regionally, Globes (2013),http://www.globes.co.il/en/article-1000896169.

46 Laura El-Katiri, Bassam Fattouh, and Hakim Darbouche, East Mediter-ranean Gas: What Kind of Game Changer?Oxford: Oxford Institute forEnergy Studies, 2012, p. 5; Noble Energy lowers Block 12 gas estimate,Globes (2013), http://www.globes.co.il/en/article-1000883055.

(6.8-15.5 bcm), a relatively small volume but largeenough to make one to two LNG trains commer-cially viable.47But to make such a project viable, thegovernment would need to make sufficient quanti-ties available for export to permit the conclusion oflong-term contracts.

By the time Lebanese LNG might be available not before the mid-2020s Lebanon will becompeting with new entrants with considerablymore market weight, including Australia (expectedto bring some 56 mtpa on stream by the early tomid-2020s),48East Africa (20 mtpa by the early

2020s, 30-40 mtpa by 2028)49and, potentially,North America (up to 125 mtpa).50Existingcontracting for Australian and East African LNGsuggests that by the early 2020s, before Lebanesegas comes on stream, a significant share of themarket will be locked up in long-term supplycontracts. Given likely production costs, Lebanonmay also find it difficult to compete on price.51

Sharing LNG export facilities with Egypt, or poten-tially Cyprus, would offer significant cost savings iftechnical, commercial and political obstacles could

be overcome. Joint monetization between Lebanonand Cyprus, with a view to LNG production, mightbecome viable at a much later stage, depending

47 This is comparable to Cyprus hypothetical LNG output by the mid-2020s, if additional volumes of gas are discovered.

48 Authors estimates, based on David Ledesma, James Henderson andNyrie Palmer, The Future of LNG from Australia, Oxford Institute forEnergy Studies, OIES Paper NG 90 (2014), http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/09/NG-90.pdf.

49 Authors estimates, based on David Ledesma, East Africa Gas The Potential for Export, Oxford Institute for Energy Studies, OIESPaper NG 74(2013), http://www.oxfordenergy.org/wpcms/wp-content/

uploads/2013/03/NG-74.pdf.50 Authors estimates, based on James Henderson, The Impact of NorthAmerican LNG Exports, Oxford Institute for Energy Studies, OIESPaper NG 68(2012), http://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/10/NG-68.pdf.

51 Jonathan Stern (ed.), Reducing European Dependence on RussianGas: Distinguishing Natural Gas Security from Geopolitics, OxfordInstitute for Energy Studies, OIES Paper NG 92(2014),http://www.oxfor-denergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdf.

6L, E M,

G G M
http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/http://www.globes.co.il/en/article-1000896169http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/http://www.globes.co.il/en/article-1000883055http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/09/NG-90.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/09/NG-90.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/03/NG-74.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/03/NG-74.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/10/NG-68.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/10/NG-68.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/10/NG-68.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2012/10/NG-68.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/03/NG-74.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/03/NG-74.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/09/NG-90.pdfhttp://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/09/NG-90.pdfhttp://www.globes.co.il/en/article-1000883055http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/http://www.globes.co.il/en/article-1000896169http://eprints.soas.ac.uk/14742/http://eprints.soas.ac.uk/14742/


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T G M F U S14

on the size and location of any new discoveriesoffshore Lebanon and Cyprus. 52

Pipeline-Export Options to Turkey, Jordan, Egypt,

Syria, and Iraq

Pipeline options might be feasible if Lebanonsreserves prove sufficient to permit exports butinsufficient to attract investment in the necessaryinfrastructure for LNG. Pipeline exports to Jordanand Egypt could be made through the existing ArabGas Pipeline (AGP). The AGP, which previouslytransported Egyptian gas to Jordan and Lebanon,

could be used for reverse flows to both markets.This would require a relatively inexpensive link tobe built between Lebanon and the pipeline.

But many uncertainties affect the viability of thisoption. The route is long and subject to disruptions.In the period before Lebanese gas becomes avail-able, Jordan and Egypt may have contracted to buy

52 Anastasios Giamouridis, Natural Gas in Cyprus: Choosing the RightOption, The German Marshall Fund of the United States, MediterraneanPaper Series (2013), http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1379968428Giamouridis_CyprusGas_Sep13_web.pdf.

gas, from Israel or other suppliers. If political andeconomic stability is maintained in Egypt, its owngas production and energy efficiency may increase.

Lebanon could also consider gas exports to othercountries in the Middle East, particularly Syria andIraq. While these countries may eventually becomeself-sufficient producers of gas, both face medium-term supply gaps. This might create opportunitiesfor Lebanese gas in the late 2020s.53But both coun-tries face a high level of violence and instability,making any assessment of their potential as exportmarkets for Lebanon hypothetical.

53 Political turmoil and economic collapse in Syria have reduced its gasdemand. But demand is likely to recover quickly if stability is restored.Iraq, while not a net importer, is thought to have been importing Iraniangas; this is unlikely to be sufficient to meet future demand.
http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1379968428Giamouridis_CyprusGas_Sep13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1379968428Giamouridis_CyprusGas_Sep13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1379968428Giamouridis_CyprusGas_Sep13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1379968428Giamouridis_CyprusGas_Sep13_web.pdf


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7C

The successful development of Lebanons gasresources could bring substantial economicbenefits to an ailing economy and strengthen

the countrys energy security. Furthermore, aswitch to natural gas from fuel oil in the powersector would lower pollution and carbon emissions,improve public health, and ensure a more reliablepower supply.

But the road to Lebanon becoming a gas produceris long. Over the next few years, the governmentwill be confronted with many complex and difficultdecisions. The formulation, adoption, and imple-

mentation of the necessary laws, the establishmentof effective institutional and regulatory structures,and the efficient and transparent management ofgas revenues are major challenges. In the contextof sectarian political polarization, the regulatoryenvironment is likely to remain volatile. Explora-tion and production may continue to be held backby delays in decision-making and poor implemen-tation.

The Energy Ministry has promised full transpar-ency in the evaluation of bids for licenses, but

it is doubtful whether such transparency can beachieved in practice. Competition among the

various sectarian groups for rents is fierce. IfLebanon is to become a gas producing countryover the next decade, it must overhaul its regula-tory practices, such as the procedures for obtainingpermits as well as customs and security clearance.This is essential to shelter the oil and gas industryfrom the corruption and red tape that currentlycharacterize Lebanons business environment.

The government needs, without further delay, toformulate a plan to manage the countrys potentialoil and gas wealth, even though it may be manyyears before exploration, production, and moneti-zation reach a decisive stage. Lebanon should bewary of importing revenue management strategiesfrom abroad, as optimal choices depend on each

countrys political, economic, and institutionalcontext.

Establishing a sovereign wealth fund, for example,may suit a country like Norway with a high level ofper capita income and strong institutional frame-work, but this may not work in Lebanon, wherethere is strong rivalry among sectarian groups andwhere the governance structure remains weak.Furthermore, establishing a sovereign wealth fundmight involve forgone opportunities to reducethe size of the public debt and improve the capitalstock and infrastructure, which are needed to put

Lebanon on a higher growth trajectory. Majoroil exporters such as Saudi Arabia, the UAE, andKuwait have set up sizeable liquidity funds tocope with oil price volatility, but this may not beappropriate for Lebanon, whose hydrocarbonrevenues will be relatively modest. Any futurestrategy should take into account Lebanons specificeconomic, political, and institutional features.54

Lebanons natural gas should be used initially tomeet domestic demand, replacing fuel oil in powergeneration. If sufficient quantities are discovered to

permit exports, these should, in the first instance,be through pipeline sales to countries in the region,such as Syria, Egypt, and Jordan, rather thanthrough LNG. A joint LNG export facility withCyprus might become feasible in the medium tolong term if both countries discover considerableadditional quantities of gas. The viability of such aproject, or of an LNG facility in Lebanon itself, willdepend on the amount of gas available for export,price, demand, developments on international gasmarkets, and Lebanons investment climate. If therecent fall in oil and gas prices is sustained, Leba-

nons competitive position, as a high cost producer

54 Rozlyn C. Engel, Managing Newfound Hydrocarbon Wealth:Macroeconomic Policy Challenges in the Eastern Mediterranean, TheGerman Marshall Fund of the United States, Mediterranean PaperSeries (2013), http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1378230392Engel_NewHydrocarbonWealth_Aug13_web.pdf .

The formulation,

adoption, and

implementation of

the necessary laws

the establishment

of effective

institutional andregulatory structure

and the efficient

and transparent

management of ga

revenues are major

challenges.
http://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1378230392Engel_NewHydrocarbonWealth_Aug13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1378230392Engel_NewHydrocarbonWealth_Aug13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1378230392Engel_NewHydrocarbonWealth_Aug13_web.pdfhttp://www.gmfus.org/wp-content/blogs.dir/1/files_mf/1378230392Engel_NewHydrocarbonWealth_Aug13_web.pdf


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T G M F U S16

that has come late to market, will be adverselyaffected.

The investment climate is affected by both internaland external factors, including Lebanons relationswith its neighbors and developments in the region.Further efforts should be made through third-partymediation to resolve the delimitation dispute withIsrael. Meanwhile, both parties should avoid issuinglicenses for exploration within the disputed area.The violent conflicts in Syria and Iraq, the refugeeflow into Lebanon, and the lack of progress in theMiddle East Peace Process continue to weigh on

Lebanons fragile political and economic situation.

Nonetheless Lebanon has demonstrated consider-able resilience in pursuing commercial opportuni-ties over the years, notwithstanding an unfavorablepolitical environment. The countrys leaders shouldraise awareness in political circles and amongthe population both of the potential benefits ofdeveloping the countrys hydrocarbon resourcesand of the conditions that need to be met to do this

successfully. This requires considerable restraint inavoiding exaggerated claims regarding increasedstate expenditure and in explaining the reformsneeded to attract the necessary investment.

Lebanon can draw on expertise from existingenergy producers and from regulators in Europe,the United States, and other countries in designinga regulatory regime adapted to conditions withinthe country itself. Regional cooperation, sponsoredfor example by the European Union, in areas suchas the safety of offshore energy installations andrapid intervention in the event of accidents can

enhance Lebanons capacity to manage its newoffshore sector effectively. Training programs forregulators, drawing on experience in the NorthSea, the Gulf of Mexico, and elsewhere can be ofparticular value. The international communityhas a strong interest in ensuring that Lebanonspotential hydrocarbon wealth brings benefits to thecountry and the region and does not become anadditional source of tension.


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lebanon: the next eastern mediterranean gas producer?

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