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Energy – A pipe dream nightmare

Pan-Arab plan for natural gas may leave Lebanon a political pawn

by Executive Staff

Across-border pipeline is among the most important geopolitical factors deciding the future nations involved. The Arab Gas Pipeline is no different. Starting in Egypt and passing through Jordan, Syria, Lebanon and Turkey, the pipeline will be crucial not only in providing these countries with energy, but in binding political agreements and even peace deals — if one country stops the pipeline, others will suffer, and thus each link of the network has to function for all to benefit. Unless, of course, the country is Lebanon.

The Arab Gas Pipeline, an operation that was to have begun several times already, was originally designed to pass through Lebanon, rather than dead-ending in the country.

The initial plan determined the pipeline would start in Egypt, go underwater to Lebanon, then overland to Syria and Turkey. That design would have practically permanently secured supply to tiny Lebanon — if gas transmission stopped here, it would also stop going to Syria and Turkey. But Lebanon, instead of being an intrinsic part of the pipeline, ended up becoming only a branch.

According to energy expert Chafic Abisaid, former director of studies in the Electricite du Lebanon (under the Ministry of Energy and Water), changes in the pipeline route came around 1996, when the Jordanians began lobbying Egypt to be part of the network. Indeed, it does make more economic sense that the pipeline go through Jordan, rather than through Lebanon. But with the new trajectory, almost a third of the energy supply to Lebanon will be under the whims of Syria, who will be able to close the tap without harming the other pipeline partners. Although just a possibility, its mere suggestion upsets government officials.

Empty pipelines
“We are part of this Arab Gas Pipeline, I insist on this,” said Sarkis Hlaiss, General Manager of Oil Installations in Lebanon. “Our contract will be signed between Lebanon and Egypt, not Lebanon and Syria: we will pay the Egyptians the money, we will receive their gas in the Syrian-Lebanese border.” But even without a direct agreement with Syria, Abisaid is more skeptical. “We had signed a 25-year contract with Syria but it has not been honored due to non-technical problems,” said Abisaid. There is already a pipeline connecting Homs, in Syria, to the power plant in Bedawwi, Lebanon, but as yet it has seen no gas. Completed in 2005, the pipeline was supposed to start pumping gas to Lebanon a few days after Rafik Hariri’s assassination.

“We were supposed to receive the gas on February 28th 2005, 14 days after the assassination of president Hariri, but we didn’t. I kept on contacting them and they said they didn’t have enough gas for their own power plants,” Hlaiss said. But now, as he explained, “the question is different. We are buying Egyptian gas.”

Indeed, the new agreement stipulates that Egypt sends a certain quantity to Syria with a surplus, so that Syria can in turn send its own gas to Lebanon, in an amount equivalent to the surplus it got from Egypt. “It’s an international affair,” according to Hlaiss. But even with an agreement that is regionally binding, some people remain unconvinced.

For Fadi Abboud, president of the Lebanese Industrialists Association, “anything to do with the Arab world is subject to the mood of the ruler, subject to politics.”

The electricity crisis in Lebanon has gone from dire to calamitous. In Beirut, for over a year most areas lack electricity for at least three hours per day. In the Metn area where many factories are, there have been power cuts lasting up to 20 hours a day.

And there is not much hope in the short term. When asked when the pipeline will start operating, an EDL official answered “only God knows.” Yet even with the pipeline, Lebanon’s electricity problem will not be solved.

Missing megawatts
What Lebanon lacks is not fuel, but power plants to convert the fuel into energy. The four main power plants in the country produce some 1,400 megawatts, way below the necessary 2,100 megawatts estimated as Lebanon’s total demand. Some say the deficit is even bigger than that, and it can reach 50% even when all the power stations are working at full capacity. What the pipeline would do is to allow the government to save money, to the tune of “hundreds of millions of dollars” every year, according to Hlaiss. Asked for a specific number, he echoed the usual lack of figures and says only EDL could answer that question.

EDL did not answer, but if the current price of oil is any indication, the government would save significantly by purchasing natural gas rather than oil. EDL’s losses are said to be $14 billion, and privatization seems to be the only solution to curb yet another government utility that does not escape the sectarian criterion for manning its ranks.

Privatization, then, is the dream solution for technicians, experts and the people who know how to manage a company. “I am 100% in favor of privatization,” said Fadi Abboud, “but we have tasted privatization in the past and it was the worst type of monopoly or duopoly.” Abisaid concurred. “There is a [privatization] law but it hasn’t been implemented. It is the law 462 of 2002.

The first thing that we should do, and in that law they did it right, is to have a regulatory body to control the energy sector. Five people should have been appointed but since 2002 they haven’t done it,” he said. That may help explain the surreal situation in Lebanon: on the one hand the country is plagued by power cuts, on the other it is possible to see streetlamps lit in broad daylight.

Some experts say because Lebanon is already dependent on oil and gas imports and is also a victim of government mismanagement, the country should not increase its predicament by depending on a single source — not only is it economically unsound, but it is also politically risky. “We cannot rely just on the Arab gas because they can bring us on our knees,” said Abboud.

Energy expert Abi said agrees, and supports energy diversification as a strategic necessity. “My first strategic choice is LNG, liquid natural gas [which comes from the sea, as liquid gas cannot be transported through pipes].” LNG is more environmentally friendly and requires less maintenance and repair. But Lebanon would have to build terminals. USAID estimates each terminal would cost some $220 million. Despite the price, this investment could be recuperated in less than two years: “When you have 30% saving from natural gas and the price of oil keeps on rising, you can recuperate it even in less time,” said Abisaid. The Homs pipeline is a last option for him. “Only one source coming from Homs means that any problem with the pipeline will result in complete interruption.”

Despite the incredulity even among EDL officials, Hlaiss believes the pipeline will start functioning in September. The project — ambitious both economically as well as politically — may eventually take Arab gas all the way to Europe through the planned Nabucco pipeline.

In fact, the Arab Gas Pipeline is just one part of the so-called Euro-Arab Mashreq Gas Market Project. At a meeting May 2008 in Brussels, the EU, Iraq, Turkey, Egypt, Jordan, Syria and Lebanon finally reached an agreement to connect those countries to the Arab Gas Pipeline and establish the Euro-Arab Mashreq Gas Co-operation Centre at the cost of $11 million, with a $9.4 million grant provided by the European Commission and $1.6 million contributed by the four Mashreq countries (Egypt, Jordan, Lebanon and Syria).

The involvement of Europe makes the project more likely to materialize, and it may revolutionize energy consumption and environmental protection in the region. Lebanon may yet be left out of the pool, but perhaps not. The first official visit of a minister in Fouad Saniora’s government to Damascus since November 2006 happened in February this year, and the official to pay the visit was Mohammed Safadi, Lebanon’s Minister of Energy and Water.

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