Home OpinionComment Oil wealth: one last chance for Lebanon

Oil wealth: one last chance for Lebanon

by Christina Abi Haidar

The quest for oil exploration in Lebanon began in the early years of the French mandate when French High Commissioner Henry de Jouvenel issued a decree permitting exploration, extraction and investment in oil and mineral mines. The initial official Lebanese regulation for oil exploration and extraction, numbered 139 and dated June 23, 1936, marked a further pivotal step. But despite numerous pre-World War II attempts by successive governments to extract oil and gas, especially from the Lebanese onshore, they faced various challenges, leading to unsuccessful outcomes.

Amidst the turbulent years of superpower confrontation in the second half of the past century, the Lebanese Civil War, spanning from 1975 to 1990, further impeded exploration endeavors. Despite post-conflict efforts by subsequent governments in Beirut, progress remained limited into the first decade of the 21st century when Israel announced the discovery of the Leviathan field. The massive find, rumored to contain at least 16 trillion cubic feet, spurred on great Lebanese interest due to it being situated in the region between the maritime borders of Palestine and Cyprus. Subsequently, the Karish field was identified near the southern Lebanese maritime borders.

In 2010, the Lebanese Parliament ratified the Petroleum Resources Law in Lebanese waters, leading to the establishment of the Lebanese Petroleum Authority. The offshore oil decrees were finalized in 2011, and in 2012 the Lebanese Petroleum Authority (LPA) was established. Six members were appointed according to a sectarian quota, and they continue their mission at time of this writing despite the end of the Authority’s tenure.

In 2013, the Ministry of Energy and Water (MoEW) announced the launch of the first licensing round in the Lebanese offshore waters, offering Blocks 4 and 9 for bidding. Numerous international companies applied for exploration rights. After a prolonged evaluation period, on December 14, 2017, the Lebanese government granted two exclusive licenses for oil exploration and production in the two blocks to a consortium comprising French multinational Total Energies, Rome-headquartered Eni S.p.A. and Siberia-based Novatek. Later on, Novatek, Russia’s second largest natural gas producer, withdrew from the consortium due to US sanctions, and was recently replaced by Qatar Energy.

Unfortunately, exploration operations in Block No. 4 did not begin until 2020. However, the initial exploratory well did not yield any gas reserves in commercial quantities, and the coalition did not pursue further exploratory attempts in Block No. 4. Exploration in Block No. 9 was delayed due to a dispute over maritime borders between Lebanon and Israel. In 2022, and after long and complex indirect negotiations, the US was able to reach a specific settlement to demarcate the maritime borders between the two countries, allowing exploration activities to begin. 

Faced with this new and exciting fact, in August 2023 Total entered a contract with the American company “Transocean Barents,” the world’s second-largest offshore drilling contractor, to rent a rig for oil and gas exploration in Block 9. Unfortunately, the results from the exploration operations in this well were not promising.

These challenges were compounded by the outbreak of war in Gaza and a constitutional vacuum in Lebanon, marked by the failure to elect a new president and political disagreements over the current government’s role. These factors resulted in a slowdown of exploration operations and negotiations with the consortium for the next stage.

Despite these setbacks, it’s important to note that the initial exploration outcomes are not necessarily discouraging. Many countries have drilled numerous wells before discovering gas reservoirs. Some have drilled up to seven wells without success, only to find a reservoir in the eighth well. This pattern mirrors the experience in most current oil fields in the Eastern Mediterranean. For example, the largest gas field in the Mediterranean, which is the Zohr field located in Egypt’s Shorouk concession, hugs the maritime border between Egypt and Cyprus. The exploitation rights of this field belonged to Shell for 15 years, during which the company drilled several wells but failed to find any gas quantities. They then sold the exploration rights to Eni in 2015, which in turn drilled a well at a depth of 5100 meters to find the largest gas reserve in the eastern Mediterranean, estimated at 850 billion cubic meters. This indicates that the discovery of gas is not always achieved through the drilling of the first well.

Required roadmap:

The delay in exploration operations is distressing for the Lebanese population, already grappling with severe economic and financial challenges. The promised oil wealth represents a potential lifeline for them amid the current crisis. However, this delay can be turned to advantage by formulating a clear strategy to harness the benefits of the oil wealth. Approval of a roadmap for laws, decrees and regulations is crucial. Thus, effective and transparent discussions involving stakeholders, experts, legal professionals and parliament members are necessary. These discussions should revolve around a fundamental question: what are the Lebanese aspirations regarding oil wealth?

The initial step in answering this question is recognizing that oil wealth is a natural resource that should serve and benefit the citizens of Lebanon and future generations. Categorizing oil revenues into emergency and unsustainable funds is imperative. A portion of these funds can be allocated to developing infrastructure and essential public facilities, fostering industrial growth and other vital services. Simultaneously, there’s a need to realize that these revenues cannot solely sustain the state’s financial needs, prompting the creation of an independent internal Lebanese economy.

Achieving this requires coupling exploration and extraction operations with the establishment of a transparent, honest and highly competent government administration. This need extends beyond the oil sector to encompass all government authorities, an aspect sadly lacking in Lebanon. Many political forces view the promised wealth as their entitlement, potentially leading to activities that consolidate their control over Lebanese political life. Relying on such thinking risks creating another failed and bankrupt oil state.

Addressing the fundamental question outlined above necessitates outlining practical steps for the strategy. This involves developing both new and existing industries, leveraging the explored gas, particularly in electricity generation. Given that most electricity generation plants in Lebanon can utilize natural gas, establishing a coastal pipeline to supply major plants (Tyr, Al-Zahrani, Jiyyeh, Zouk Mikael and Deir Ammar) is vital. This not only reduces environmental pollution but also lessens the burden on the Lebanese treasury for oil imports. Additionally, it extends the lifespan of electrical production generators and ensures a diversified source of fuel. This is especially pertinent since the public utility, Electricite du Liban (EDL), which has the exclusive rights to generate electricity, currently relies on one sole source of oil—heavy fuel oil—for electricity generation. Dependence on gas will also open the door for other clean resources (such as hydro, solar and wind) to be involved in the production process.

To safeguard Lebanon’s self-sufficiency in explored gas before any exportation, the Parliament should enact legislation, following the example of numerous oil and gas-producing countries. This comprehensive approach is crucial for steering Lebanon away from the pitfalls of becoming a failed and financially unstable oil state.

Hydrocarbon extraction is a nascent industry in Lebanon, exerting a nuanced impact on the environment across various dimensions. Hence, Lebanon must prioritize environmental preservation and shield itself from any activities that may alter its ecological and touristic appeal. This involves enforcing global standards on exploration, transportation, and storage companies, with stringent monitoring and accountability measures in case of errors.

Border demarcation, regulation and legislative bodies

Zahrani Oil Reserve

Lebanon must expedite the demarcation of its maritime borders with Cyprus to the west and with Syria to the north. This matter should not be underestimated as it ensures stability, which encourages reputable companies to participate in exploration operations in the blocks located in the two countries’ adjacent territorial waters.

The enactment of legislation governing oil and gas exploration on Lebanese territory, particularly onshore operations due to their cost-effectiveness, should be promptly completed. This process must carefully consider environmental conditions, safeguarding groundwater, riverbeds, antiquities and ensuring fair and prompt compensation for necessary expropriations.

Establishing a storing and transportation national oil and gas company to store petroleum extraction and handle transportation activities is imperative. This entity should replace the oil installation facilities in Tripoli and Zahrani, defining its legal, administrative, and financial structure clearly and effectively. Its core responsibilities should extend to the storage, transportation and export of gas, considering Lebanon’s significant oil reserves in Tripoli and Al-Zahrani, along with the need for the rehabilitation and development of existing oil refineries. 

Additionally, a national oil company, modeled after those in other oil-rich countries, should be formed. Adhering to the principles of good governance, this company should collaborate with major international firms in operational activities. The primary objective behind establishing this national oil company is to ensure Lebanon’s security and energy independence, aligning with an economic policy that fosters collaboration with neighboring countries across various sectors.

Crucially, the establishment of a sovereign oil and gas wealth fund is required, dedicated to housing oil and gas revenues along with profits from its investment operations. Recognizing that oil revenues differ from conventional taxes, the fund should serve the interests of future generations. A portion of these funds can be utilized for the advancement of human development in Lebanon, supporting research centers, educational institutions, infrastructure, etc. The management of this fund must be independent, free of narrow political and sectarian influences and interference.

Before initiating these steps, the government, following the election of a new president, must promptly appoint experienced and transparent members to the LPA. 

Lebanon’s leaders, study centers, and advocacy groups should capitalize on this opportunity to endorse and compel Parliament members and the anticipated government to adopt this comprehensive strategy. Clear, transparent regulatory provisions should be established to delineate the processes of extracting, transporting and benefiting from oil and gas, ensuring that Lebanon’s anticipated oil wealth becomes a boon rather than a curse. Drawing lessons from past experiences, Lebanon must seize this opportunity to harness its natural resources effectively, preventing any irreversible losses.

Support our fight for economic liberty &
the freedom of the entrepreneurial mind

Christina Abi Haidar

An attorney at law - governance and energy legal expert, and a legal consultant on the draft Distributed Renewable Energy law

View all posts by

You may also like