Can gas extraction save Lebanon from its financial collapse?

After Lebanon and Israel finally approved their joint maritime border agreement, politicians have been rallying behind the ability of gas extraction to save Lebanon from its financial collapse.

Yet the fact remains that Lebanon has not entered the oil-producing countries’ club, as gas and petroleum will not be the magic solution for the financial, monetary and economic crisis that has been storming the country for the past three years. 

In the case where such a scenario fulfills expectations, the promised oil and gas resources will not bridge the great financial gap Lebanon falls in today, but will instead create a foundation that can assist in reviving the economy if it were to be managed transparently. 

But given the government’s track record of handling large endeavours such as this, great fear around the oil and gas resources becoming a  financier of corruption, waste and splitting shares remains. 

What are the expected economic advantages of the oil and gas resources? Are there realistic expectations for the size and value of this wealth? Is the oil and gas wealth considered enough to pull Lebanon out from the deep crisis it has been dealing with for years?

The Stages of Extraction 

After French energy and petroleum company TotalEnergies began extracting Gas in Block 9 in the Qana field, ambitious Lebanese citizens have been sold fantasies by politicians to solve their crisis. Even if gas existed in large quantities in Lebanese waters, there are no definite indications till this moment, as Total has not released any reports or predictions about the expected amount, as it waits for the start of the rig operations. 

The talk about Lebanon becoming an oil-producing state coupled with the exaggeration of politicians, most notably the Minister of Energy and the Prime Minister, about Total having put a plan and done geological studies and specifying the costs and beginning the extraction processes has done nothing but sell a fantasy to the public.

The fact is that extraction will not happen overnight, but in a time frame of three years which is the term of the contract with the Lebanese state. 

According to oil expert Laury Haytayan, the French company will have to start the rig operations in the first exploration well in Block number 9, and fulfill its obligations stated in the contract and then specify a schedule. After processes of discovery and rigging, reaching the stage of development and extraction would need a time frame ranging between four and five years, according to Lebanese Oil and Gas Initiative (LOGI) Executive Director Diana El Kaissy. 

Kaissy says that in the best of scenarios, and in case Total started working on the file today and all stages have been fulfilled smoothly, gas extraction would still require around five years. Extracting petroleum differs from extracting gas, as the latter requires different mechanisms and strategies, as well as insuring markets for exporting before extraction.  

Kaissy further explained to Beirut Today the stages leading to gas extraction, starting from rig operations which take an entire year to clarify the presence of commercially viable amounts of gas, passing by the evaluative wells stage then the stage of developing the field to trace a plan for the strategy of extraction then determining the exporting destination. 

Following that, there will be the exporting mechanism, as well as the routine procedure in the Lebanese state and obtaining the opinion and evaluation of the Lebanese Petroleum Administration and the approval of the Minister of Energy and the Council of Ministers. This stage also depends on the complete coordination between political teams and the presence of an active government and not a caretaker one. 

In short, these stages will need four to five years to complete, barring the occurrence of any obstacles and difficulties.

Mark Ayoub, researcher in the energy industry at the Issam Fares Institute (IFI)  at the American University of Beirut, says Lebanon needs at least one year to settle and verify the existence of gas, followed by three years to develop the field. 

Ayoub also points out in his interview with Beirut Today that the Israeli Karish field started its developing process in 2013 and 2014, and began producing in 2022. Therefore, we must not expect any production process for at least five or six years.

Regardless of the differences in time predictions among oil experts, most predictions place extraction between three years minimum and six years maximum. The praise of politicians and the framing of Lebanon as an oil-rich country immediately after the signing of the maritime border agreement is nothing but misplaced promises. 

The Expected Resources

Lebanese politicians believe the commercial amount of gas is capable of pulling Lebanon out of its economic and financial crisis. However, their expectations and the random numbers tossed around is nothing but an exaggeration that rises to the level of hypocrisy, and often targets running away from implementing the financial reforms that the World Bank requires. 

Kaissy does not expect large financial returns from gas Block 9 as some might imagine, and in the best-case scenario, where a large gas field has been acquired, Lebanon can achieve six billion over 15 years, unlike the Israeli Leviathan field. 

Kaissy says the best case scenario is one where Lebanon discovers and develops a large field for oil and gas similar to the Leviathan Israeli field of 16 trillion squared meters, and has the ability to use all of its reserves, then its financial revenues would be about 6.1 billion dollars on the basis of generally six dollars for each MBTU over the time span of 15 years. 

The worst-case scenario, however, would be if Lebanon discovered and developed an oil and gas field that is medium in size and commercially viable, similar to the size of the Cypriot Aphrodite field of 4.5 trillion square feet, then Lebanon’s share from the revenues would be around 1.7 billion dollars, on the basis of generally 6 dollars for each MBTU over the time span of 15 years. 

According to Ayoub, the financial revenues for gas will only cover a small fraction of the losses of the banking sector currently standing at 70 billion dollar, meaning that the mechanism of settling the financial gap has not been agreed on. 

Gas is not Enough

The oil and gas industry has potential to be one of the foundations for future economic development, but it will not solve the economic and financial crisis in Lebanon. Here, experts agree on the need to implement financial reforms to combat corruption and facilitate the benefit of Lebanon from its oil resources. 

There are no doubts that foreign companies will have the ambition to invest in Lebanon if the extraction of gas and the verification of presence of large amounts of it in Block 9 succeeds. 

Nonetheless, if Lebanon does not start implementing reforms to tackle its financial and economic crisis, Lebanon would then be a poor oil country as a result of the non-transparent administration of the oil and gas files, along with the absence of active governance and supervision which would lead to the financial returns funding waste and corruption. 

“We cannot consider the economic crisis resolved or that it is on its way to resolution, and one should not think of the possibility that all of a sudden a citizen would be able to fill their car tank with gas,” Ayoub said. “The situation is not like this at all as the solution to the economic crisis is related to necessary reforms that oil and gas won’t solve, especially that until today we do not know what the oil and gas resources are hiding and if the reserves are useful or not.”

In the end, we see politicians selling us fantasies that the crises have been resolved, and 

pushing citizens to anticipate gas revenues to solve the crises. Yet the fear regarding selling state assets and institutions remains, along with the attempt to sell gas to donors and borrow money.