With Lebanon’s achievement of its constitutional requirements in terms of electing the president of the republic and the new government gaining the confidence of the parliament, all the requirements of the county’s recovery have become required at once. While the state institutions and administrations must regain their effectiveness and pivotal role in managing public facilities and providing services, Lebanon’s economic recovery remains essential for the country’s revival and prosperity. At a time when Lebanon has been suffering since 2020 from an economic and financial crisis, the Israeli destructive offensive came to increase the crisis and requirements for recovery.
The economic and financial crisis led to an unprecedented collapse of the Lebanese economy, which the World Bank classified as one of the ten worst crises in the world since the mid-nineteenth century. This crisis has affected financial and monetary stability, as the purchasing power of the Lira has decreased, deposits have been stolen, the banking sector has collapsed, and Banque du Liban’s losses, totaling approximately 76 billion US dollars, have been revealed. Meanwhile, the previous government’s efforts to halt the collapse were limited to inadequate measures.
In contrast, the oil resources expected to be available in the Lebanese Exclusive Economic Zone (EEZ) are back in the spotlight, especially with the initiative of the President of the Republic, General Joseph Aoun, to his French counterpart, President Emmanuel Macron, to urge TotalEnergies company to complete exploration work. It is worth mentioning that the French company stopped drilling in block nine before completing its obligations stipulated in the exploration and production agreement, which obliges it to drill a new well in the same block to fulfill its obligations.
The return of Lebanese oil resources to the forefront raises questions about the potential contribution of its anticipated revenues to addressing Lebanon’s financial and economic issues. This return occurs when Lebanon has struggled to explore productive wells without results despite efforts made in blocks 4 and 9. Some question the availability of these resources under the waters of the EEZ and elsewhere on the Lebanese mainland. Simultaneously, geological studies refute these allegations and doubts.
This is because the availability of these resources is not limited to the results of seismic surveys conducted by international companies on behalf of the Lebanese state. Instead, the results of surveys by the United States Geological Survey (USGS), which were initially announced in 2010 and then confirmed in 2021, indicate that the Eastern Coast of the Mediterranean Sea, of which the Lebanese EEZ is a part, contains at least 280 TCFG of gas in addition to 2207 barrels of natural gas liquids (MMBNGL).
The best evidence of the availability of commercial reserves in the Lebanese EEZ is the interest of major international companies in participating in the first licensing round. These companies became interested after being informed of the results of seismic surveys by the French company Geo-Parkla in 1993 and Neos Geosolutions in 2014, which included part of the Lebanese mainland.
However, the stability of gas and petrol prices at low levels has raised questions about the feasibility of extracting undiscovered resources, especially in countries where discoveries have not yet been made. This is especially true since the process requires enormous investments, prompting many international companies to reconsider their priorities and limit their work to special areas. However, what happened with Lebanon cannot be included within these considerations; instead, it comes within the framework of political considerations.
In contrast, relying on anticipated revenues from projected oil resources to aid Lebanon’s recovery is unrealistic, especially since gas and oil production typically requires three to five years after discovering a productive well in the exploration area. Furthermore, most revenues during the initial years of production, known as “cost oil,” go to the company holding the exploration and production license to recoup its costs. Meanwhile, the remaining petroleum, referred to as “profit oil,” will be shared between the companies and the state according to their respective rights.
However, this situation does not obscure the importance of these revenues when they are both generated and managed effectively. The key issue is not the amount of revenue but how to preserve and utilize it as efficiently as possible. The Lebanese financial collapse was not due to a lack of resources but rather to the mismanagement of its financial revenues, which were available in the years leading up to the crisis.
It’s important to note that oil and gas play a crucial role in global energy production and transportation. Compared to other alternative energy sources, their energy density makes them more efficient for operating vehicles and factories. Additionally, oil and gas are generally less expensive than renewable energy due to the existing infrastructure dedicated to global distribution.
The first expected positive impact of Lebanese oil and gas extraction, when it occurs, it is the possibility of using it locally to generate electricity, which reduces its cost and lowers the dependency on fuel importation from one the one hand and leads to minimize the balance of payments deficit, which is considered as a significant reason of the financial crisis.
Expected oil and gas financial revenues could generate foreign currency inflows, boost the BDL’s foreign reserves, and prevent the Lebanese pound from collapsing again. The sector could also create new direct and indirect jobs in engineering, transportation, services, and other sectors.
When a surplus is achieved in oil and gas revenues, it can also be used to pay off part of the public debt, which helps restore confidence in the Lebanese economy. If oil and gas revenues are invested reliably and transparently, Lebanon’s financial and economic crisis will be alleviated. However, success depends on distancing the sector from political quotas and limiting inefficient spending, which is often encouraged by rentier revenues, such as oil and gas revenues.
That means good governance must be adopted in managing revenues and investing them in productive sectors, especially those dedicated to export. Given positive information about oil wealth availability in its EEZ, Lebanon must accelerate its steps to extract oil and gas from anywhere available, whether on the mainland or under the seawater, and invest its revenues as soon as possible.
It is impossible to wait for the anticipated oil and gas revenues to emerge as part of Lebanon’s economic recovery. However, it is crucial to promptly extend the third licensing round, which concludes on March 17, by six additional months. This extension is necessary to amend the terms of the exploration and production agreements, enabling medium-sized companies to participate in future licensing rounds.
Since no international oil companies have submitted bids for the third licensing round to date, amending the exploration and production agreements is a necessary reform for the oil and gas sector. These amendments, in turn, prevent a recurrence of the single bid submitted in the second licensing round, which was allocated to blocks 8 and 10. They also expand the scope of competition and enhance the terms that Lebanon can acquire.