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Open the floor

It’s time for a national debate about oil and gas

by Executive Editors

Lebanon’s politicians are squandering a golden opportunity. Now that the close of the first offshore oil and gas licensing round has been indefinitely postponed, the country once again has a chance for a real national debate about the future of this nascent sector and how to integrate it into the economy. Potential hydrocarbon resources would belong to the entire nation — and as such would be far too important to trust to political and bureaucratic elites making decisions away from the public eye. Opening the floor to a national debate is the best way to ensure any resources are managed properly.

[pullquote]Opening the floor to a national debate is the best way to ensure any resources are managed properly[/pullquote]

The dangers are stark. In Egypt, policymakers vastly underestimated domestic demand, promising far more natural gas for export than could be realistically delivered (see “Never too early to plan“). The consequences have been devastating, with the country now billions of dollars in debt to the companies that are extracting its gas and who were promised large quantities to export. Meanwhile, Cyprus did not properly manage expectations and, faced with far less gas than anticipated and planned for, is essentially back to square one, praying to find more resources.

The only ‘positive’ example in the region comes from Israel. In 2010, a specially designated committee began reviewing that government’s oil and gas fiscal regime, taking input from experts, companies and the public. The following year, the committee issued its report, setting off a raucus public debate in the cabinet and Knesset and across the media spectrum. And that was only round one: once the extent of offshore discoveries started to become clear, Israelis wrangled again over how much to export and how much to reserve for domestic use. When the country’s largest gas field begins producing later this decade, there are unlikely to be unpleasant surprises.

These examples lay out a clear path for Lebanon. Not only will a public debate make policymakers’ jobs easier by giving voice to the broadest range of concerns, it will also minimize surprises for the public down the road.

[pullquote]there was no parliamentary debate, no cabinet meeting dedicated to the issue and certainly no public participation[/pullquote]

Take, for example, the fiscal terms the Lebanese Petroleum Administration plans to include in the model exploration and production sharing agreement. On a recommendation from the LPA, the Ministry of Energy and Water decided what terms to include in the contract and set out which items companies can bid on — which will have a very serious impact on how much the government makes off of any resources found. While the LPA seems to have provided professional advice in designing the fiscal terms, there was no parliamentary debate, no cabinet meeting dedicated to the issue and certainly no public participation. In fact, the public is still largely clueless as to what the fiscal terms will be. A critique of the LPA’s decision by Nicolas Sarkis, published earlier this year in the Lebanese press, came close to resembling a ‘debate’, but Sarkis’ argument was flawed and the LPA — not to mention the energy ministry — has not responded. These decisionmakers have a solid argument to make in their defense; it boggles the mind why they are not making it.

While thus far decisions have been relatively simple, the issues will only get more complicated moving forward. Unlike Saudi Arabia in the 1940s or Nigeria in the 1960s, if Lebanon finds oil and gas, it will have a developed economy in place, meaning that hydrocarbons stand less of a chance of becoming the only component of the country’s economy. Integrating the new sector into a relatively diverse economy in the most advantageous way will require deft management.

[pullquote]How much of Lebanon’s resources will be saved for domestic consumption and how much will be exported?[/pullquote]

To provide this, parliament needs to better understand oil and gas and play a more active role in influencing policy. The council of ministers, which is legally responsible for setting policy, should play a more prominent role in deciding how the sector moves forward. Ministers and parliamentarians, therefore, must first understand oil and gas to make informed decisions. Where are the public hearings? Why are LPA board members not being regularly hauled before parliament to explain their work and recommendations? 

According to the laws governing oil and gas, Lebanon can take some of its resource wealth — if any is found — in kind, meaning actually receiving oil or gas. Will this be used for electricity production? What local industries can benefit from it? How much of Lebanon’s resources will be saved for domestic consumption and how much will be exported? Where will those exports go and how? These questions should be answered through a national debate.

We all know that oil and gas will not fix all of Lebanon’s problems. These are nonrenewable resources that will eventually dry up — as will the revenue streams they create. What the country needs to be discussing is how to manage any money earned and how to use what will be spent efficiently and effectively. This discussion should have begun years ago. We have another chance to start it now.

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Executive Editors

Executive Editors represents the voice of the magazine.

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