Amid the worst economic crisis Lebanon is witnessing since the civil war, one could identify two major observations (a positive and a negative one) when it comes to the country’s energy sector, which is considered both a main cause and a major contributor to the financial gap the government is currently facing. The negative one is that Lebanon appeared to be a country running on diesel, across all its vital sectors such as health, telecommunications, transportation and of course electricity (through the private diesel generators). The other, positive observation is that the current crisis has allowed to create a collective awareness among citizens and communities around the importance of renewable energies, and mainly solar energy, as a tool to reduce their reliance on diesel, along with its long-term environmental and health benefits.
Yet, the current almost-complete blackout the Lebanese people are living is not a surprise nor a coincidence, but rather an expected result of the decades-long mismanagement of the sector. Lebanon’s power and energy sectors’ struggles are the result of the fundamental policy inaction that reigns over decades, with under-investment in infrastructure since the late 90’s, a lack of a comprehensive vision of the country’s energy mix, and a deliberate negligence of the potential of renewables energies.
FUEL IMPORTS: A HIGH DEPENDENCE ON FOSSIL FUEL
The MENA region has always been characterized by a high dependence on oil and natural gas to meet its energy needs. Although the region is a major energy producer, many countries are struggling to meet growing domestic energy demand. According to BP numbers in 2019, the Middle East is expected to face an annual increase in energy demand of around 2 percent until 2040, where the power, transport, industrial, and non-combusted sectors will mainly be responsible for this high increase in final energy consumption. Therefore, transitioning to energy systems that are based on renewable energy is a promising way to meet this growing demand, and has started to be implemented in several countries of the region.
Being part of this region, but not as an energy producer, Lebanon has been a major oil importing country for decades, making it economically vulnerable to oil price fluctuations, a matter that severely endangered its prosperity, and has recently caused a severe jump in gasoline and diesel prices completed with a total removal of subsidies. For years, imported fuels accounted for around 97 – 98 percent of the energy supply putting a huge burden on the state’s budget. The electricity generation sector was, and still is entirely dependent on imported petroleum products, which we lack the foreign currencies to currently buy. In addition, the transport sector is heavily relying on gasoline and diesel, with the absence of a stringent and sustainable transportation sector.
Lebanon’s total primary energy supply in 2018 was 8.57 Mtoe, or around 61.21 million barrels of oil according to the International Energy Agency (IEA) in 2020. In terms of the energy consumption by sector, the transport sector dominates accounting for 52 percent, followed by the residential sector (19 percent), and the industrial sector (14 percent). The energy mix is predominantly made up of oil. In 2018, oil held a 95 percent share in the energy mix, coal accounted for 2 percent (mainly used by cement factories), while renewable energies held a share of the remaining 3 percent, including hydropower. Oil sources in the energy supply have always been the key fuel in the energy mix, varying between 92 and 95 percent since 1990.
However, the Lebanese energy strategy is today at a turning point, as the country cannot continue relying on imported fossil fuels that are bought via the dwindling foreign currencies reserves at BDL. The latter has started the process of subsidy removal on oil products earlier this summer, leaving citizens to confront the reality and burden of increasing prices without any social safety net.
According to the Directorate General of Oil (DGO) numbers in 2018, the imported fuel products in the country amount for around 8.5 million tons combining liquefied petroleum products (propane and butane), gasoline (98 and 95), diesel oil, heavy fuel oil, jet fuel, asphalts and petroleum coke. This would account for around $6.2 billion of hard currency, $1.7 billion of which was used as fuel subsidy for Electricité Du Liban (EDL), Lebanon’s national electricity utility, while $2.4 billion were used for gasoline products.
These numbers fell in 2020 during the COVID-19 pandemic, where fuel imports amounted to only around $3 billion, equivalent to 7.7 million tons of products.
LEBANON’S DOWNSTREAM OIL CARTEL IN NUMBERS
The downstream oil operations, by definition, cover the import, storage, marketing, distribution and use of hydrocarbons as well as related infrastructure that is used to supply oil products to the national market.
The downstream oil sector in Lebanon is controlled by 13 private companies that import, store and distribute the majority of the fuel products, benefiting from a large storage capacity. The latter allow these importers to manage more than half (or 55 percent) of the distribution stations that amount in total to around 3,100 stations. They also own around 68 percent of the distribution trucks that transport oil products to the several regions. The sector has been governed by the decree 5509/1994 that organizes the several activities across the value chain from import, to storage, transport, and distribution. To date, this decree has never been well implemented or followed.
When adding to those 13 companies the ones working in the gas sector as well as in the cement industry, which both import their own share of oil products, the total number of companies becomes around 18, equivalent to the number of companies operating in France, and way above the ones in Jordan (5 companies) and Syria (15 companies). This large amount of actors for a small market like the Lebanese one makes their alliance and cooperation vital to secure the profit share. Consequently, these companies do not import individually, but rather agglomerate to import the same shipments and then share the quantities to distribute them in the market, reflecting a clear representation of the monopolistic structure of the sector.
The majority of these companies have emerged during the civil war years with the collapse of the country’s institutions. This cleared the way for militias and influential people to evade government controls and started importing from Syria and other countries, benefiting from their control over the coastal cities and its reservoirs. After the end of the war, more autonomy was given to the private sector as of the 2000’s, and these companies expanded.
These 13 companies have a powerful storage capacity, with 7 terminals on the coastline to store petroleum products shared by both private and public sectors. While those imported from the Government are concentrated at the oil installations in Tripoli and Zahrani, the private sector reservoirs, which accommodate quantities touching 500 million m3 (excluding jet fuel), are distributed over seven ports in Dora, Antelias, Amchit, Zouk and Anfeh, Tripoli and Jiyeh. As for the facilities in Tripoli and Zahrani, they contain about 481,000 m3 in the tanks currently in use.
AN INCREASING DEMAND FOR SOLAR-POWERED SYSTEMS
Building on the positive observation the crisis has emerged with when it comes to the importance of renewable energies, the Issam Fares Institute at the American University of Beirut has launched a quick survey in August 2021 with companies working in the implementation of solar projects for households, industrial and commercial activities, in order to assess the increasing level of demand on those solar systems. 20 companies have responded to the survey and the answers have shown that between January and July 2021, those companies have received around 6,700 requests to install solar systems, 516 of which have effectively seen light with a total energy generated of around 7.75 MW. This means that when citizens get to know the real cost of installing such systems, they become reluctant in moving forward, and also that the year 2021 is expected to reflect the most important increase in solar systems’ installations during the past decade.
By end of 2019, the installed capacity of renewables was around 365 MW, including 286 MW of hydropower and a cumulative PV installed capacity of 78.65 MW, according to the Lebanese Center for Energy Conservation’s 2019 solar status report, while the Lebanese Government has announced its aim to reach 30 percent of Renewable Energy by 2030. In June 2020, the latter target was further supported by International Renewable Energy Assocaition (IRENA) Outlook for Lebanon stating that for Lebanon to reach 30 percent, it was to install around 4,700 MW of solar, wind, hydropower and biogas.
A POLITICAL ECONOMY CONSTRAINT TO THE ENERGY TRANSITION
Lebanon’s electricity sector is affected by three key challenges that impact the energy transition at least in the short-term, but potentially also in the long-term: weak governance, underinvestment in the supply, and the lack of financial stability. Deep-rooted political economy challenges have heavily weighed on the energy and electricity demand and supply over the past years. Electricity reform efforts do exist mainly on paper without being implemented, and the main question remains: why hasn’t it?
A successful transition to a more open and competitive power market that supports the renewable take-off will further depend on appropriate institutions and structures with clear roles and responsibilities, as well as a robust regulatory framework. A transition towards a more resilient energy system further requires first the diversification of energy supply and energy demand management on the technical side, but also tackling the political economy constraints that would allow the leapfrog towards renewables, namely the oil cartel value chain, and the diesel generators’ market and network, both benefiting from the collapse of the electricity and energy sectors.
The energy transition will need to leave no one behind, and innovative political economy tools would allow all social constituencies to take part of it, where a just participation in the energy transition involves citizens’ awareness. Furthermore, the introduction of participatory tools and channels in the energy transformation process could foster acceptance and contribute to fair power dynamics and energy policies.
Both policymakers and citizens need to understand the benefits that renewables can offer and recognize how global cost reductions make this technology an interesting alternative to fossil fuels imports as well as diesel power generation. In fact, the cost of solar panels has dropped by 85 percent over the last 10 years.
The old system of dealing with electricity issues has led to the current complete collapse. A way out should consider renewable energies as a centerpiece of energy planning and not just a policy add-on. This cannot be done without a comprehensive system that ensures the proper implementation of renewable energy systems and the removal of existing legal, institutional and political economic hurdles in front of this implementation.