Oil and Gas Will Not Illuminate a Path Forward for Lebanon

As millions of Lebanese scramble to meet their basic needs and keep the lights on, Lebanon urgently needs a new, more realistic vision of what fossil fuels can do for the country. For years, politicians in Beirut swore that “entering the club of oil producers” would transform Lebanon’s failing economy and crumbling power sector. But that narrative has gone quiet over the last year, after a first offshore well came up dry, the ruling class became unable to operate a functioning government, the pandemic upended daily life and the economy imploded. Now, further drilling offshore is delayed, a second licensing round is on hold, and most people are focused on survival. In this harsh climate, what’s still possible?
 
In a new briefing, we warn that Lebanon should not stake its economic or energy future on oil and gas. For the last decade, politicians have made vastly differing claims about the size of Lebanon’s natural resource wealth, all based on limited information. The actual size of the country’s reserves remains in doubt, and unless further drilling finds something significant, no company will agree to extract.

Time is also of the essence, because even if there aren’t more delays, Lebanon would not produce any oil or gas until the 2030s—well into the era when extractives companies will be walking away from high-cost deepwater projects in “frontier countries”. In truth, Lebanon’s offshore was already a marginal destination for investment even before the pandemic caused a global slump and the energy transition started picking up speed—despite official claims to the contrary.
 
What if Lebanon does make a sizable discovery, though, and production starts while oil companies are still interested and foreign demand is solid? While no one can put a reliable price tag on such a scenario, there is no cause to think that oil and gas exports would be an economic “turning point” or a solution to the current miseries. In fact, the experiences of other countries show that becoming a producer could make some of the country’s economic governance problems worse—leading to, for instance, unrealistic budgets, more unsustainable debt and more endemic corruption. At worst, relying too much on fossil fuel exports would prolong the consumption- and rent-based economic model that underpins the current crisis, merely shifting dependence to a new sector.
 
As delays and obstacles to exporting fossil fuels have grown, the government in Beirut has reimagined its hypothetical gas as a new, cheaper fuel for the power plants owned by Électricité du Liban (EDL), the mismanaged, perennially insolvent state-owned utility. This focus on cost savings is understandable, given the dire need for cash. Yet it could be misleading, as there is no guarantee that burning gas for power will make for significant savings. Routine dysfunction and delays around new gas-to-power projects could even add costs, including big penalties, flaring and the need to fall back on gas imports. The risks that there won’t be domestic buyers for Lebanese gas are very real, considering that the government’s promises to build new gas-fired power plants go back to at least 2010.
 
Solar and wind, meanwhile, have received far less attention, despite their high potential. Gas versus renewables isn’t necessarily an “either-or” choice for Lebanon, as neither could close the huge power supply gap by themselves and both face serious (and overlapping) commercial and technical headwinds. Yet renewables could offer Lebanon bigger long-term cost savings than gas-fired power, along with other upsides like improved energy security, less exposure to world fossil fuel prices and less pressure on the local supply of U.S. dollars, the key foreign currency in Lebanon’s inflationary, import-driven economy. Political leaders also need to ask whether they will be able to finance an electricity system that depends heavily on gas in the longer term, especially as foreign capital for fossil fuel projects dries up.
 
This outlook, though disappointing, offer a chance to create a new energy strategy for when the country’s economic and political fortunes improve. To start, the new government should facilitate a multistakeholder risk assessment for oil and gas, to help adjust expectations. It should also set fresh goals and targets for the power sector, describe how gas and renewables will work together in the domestic energy mix, and clarify EDL’s role going forward. Officials should also reassess the investment barriers to utility-grade solar and wind projects and find ways to help lower them. New institutions and regulations may still be needed as well—for instance, a long-delayed power regulator and a distributed renewable energy law.
 
Leaders should start work on this new strategy now, rather than waiting for foreign donors and international financial institutions to write it for them. As aid negotiations go on, these outsiders will demand preconditions and reforms related to energy, some of which may not be in the country’s best interests. Consider the failed French-led roadmap of 2020, which pressured the government to fast-track arguably unworkable plans for new gas-fired power plants, among other things, in exchange for $11 billion in soft loans. The new IMF talks, however uncertain their prospects may be, should not become the latest chance for an outside actor to shape the story of Lebanon’s energy future.
 
Starting early, the Ministry of Energy and Water should also communicate, and solicit feedback on, any new direction it wants to take in the energy sector. Assessing needs and managing public expectations will be critical for the success of any new strategy, and no plans should be made without wide-ranging consultations and dialogue, a step that politicians often ignore.
 
By the end of all this outreach and stocktaking, Lebanon should have a new narrative for what oil and gas can and can’t do for its economy and its citizens. And unlike the old one, this should be based more on facts and hard trade-offs, and less on unrealistic hopes and empty promises.

Photo by JossK via Shutterstock.