Will potential petroleum help Lebanon rise or make it fall?

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As a matter of fact, experience has shown that to reap the benefits of oil and gas discovery, a matter of full-fledged policies must be drafted and implemented.

by Hussein Badreddine -Source: Annahar

A floating power station waits off the coast at Jiyeh, south of Beirut, Lebanon, (AP Photo).

On the 17th of October, thousands of Lebanese took it to the streets in response to a set of regressive tax proposals and to demand a stable economy.

Lebanon has been plagued with a lack of electricity, inadequate hospitals, infrastructures, pollution, poverty, pressure on the Lebanese pound, an increase in the cost of living, taxes, and corruption. Minister Hariri finally resigned on the 29th of October and the establishment has since been working on a plan to appease its people.

Meanwhile, the Total led consortium announced the drilling of the first exploratory well in Lebanon’s block 4 to start in December 2019. It is no secret that the Lebanese establishment is relying on potential oil and gas revenues to boost Lebanon’s economy, stabilize the Lebanese pound, and subsequently secure loans such as Cedre. But in the light of the recent shortcomings of the government, it is fair to ask whether oil and gas discoveries in Lebanon could form part of the answer.

As a matter of fact, experience has shown that to reap the benefits of oil and gas discovery, a matter of full-fledged policies must be drafted and implemented.

First, finding commercially viable oil or gas is not guaranteed, even with positive seismic surveys’ results. The seismic surveys carried out offshore Lebanon has shown oil and gas resources in the subsea of Lebanese maritime territory, but extracting petroleum products in a form that is commercially viable may not follow automatically.

After positive seismic results were reported in Cypriot’s water, the Cypriot energy minister Yiorgos Lakkotrypis had to announce that it was “too small to develop on its own”, thus non-commercially viable.

In addition to the long run between discovery and actual disposable revenue for a State, another challenge would be the implementation of efficient and all-encompassing State’s policies regarding, amongst many other things, the energy sector.

Another challenge is to see oil and gas revenues benefit populations. This is the lesson we have learned from Africa. Indeed, living standards in oil-producing African countries are low, and poverty is embedded in the streets. Interestingly, tackling corruption is considered one of the key elements for a nation to rise. As such, corruption should be Lebanon’s arch-enemy, and as Muhammadu Buhari, the Nigerian president said: “If we don’t kill corruption, corruption will kill us”.

Nigeria is one of the world’s richest oil countries has been referenced as a case study to a country destroyed by oil extraction. In other countries such as Ghana, public debt has dramatically increased between 2006 and 2014, mainly because of petroleum backed-loans. Is Lebanon going to have the same fate? That is, using oil secured debt to finance expenditure and further corruption.

Furthermore, in the event that commercially viable petroleum is discovered, the new government will have to address questions including: How should Lebanon use its petroleum revenue to build an industrialized economy? Would a deal be brokered with investors to build refineries and petroleum infrastructure in order to be more flexible as to petroleum usage? Would this bolster the energy industry? How can oil and gas help provide 24hours electricity? It is also important to point out that moving away from an economy dependent on oil is necessary for a nation’s rise, thus industries such as fishery, agriculture, health, and education should not be neglected.

For oil generated wealth to flow into a country, many factors shall be taken into consideration, starting with asking whether the establishment of a National Oil Company would be a guarantee that oil riches will flow into a country; if yes, when? At what stage of the extraction process it is better to create a NOC in order to ensure maximum profitability? How? And why? Would it be a matter of culture and ideology that gave the history of Lebanon that was under the Ottoman rule and French mandate? For instance, colonized countries such as Iran, Iraq, and Egypt had their resources controlled by foreign entities, therefore they attempted to take control over their own resources. Also, one should take into consideration that the most developed States such as France, the UK, the US, and Norway do not own NOCs, though, succeeded in building greater economies; how will the extracted resources be exploited? Is a NOC a good investment for the State? How will this NOC be governed and under what laws?

For instance, one would assume that nationalization would bring more revenue to the government treasury; however, the issue has more to do with the political direction chosen by the government coupled with the management of the NOC, as according to the state-owned oil companies specialist Patrick Heller, only some NOCs, if well managed, could help the country benefit from the Oil industry and could be used as a vehicle to achieve different kinds of developments including longer-term economic returns, capturing a greater share of the economic benefits that come out from projects, monitoring the activities of private partners but also and most importantly developing local skills often leading to them being experts and leaders in their own countries. External factors always play a vital role, such as a country’s position amongst international players and international oil crises. For instance, Totaling 300 Billion barrels of proven oil reserves, Venezuela is considered to be number one followed closely by Saudi Arabia with 267 Billion barrels in 2014.

With such resources, Venezuela has a high potential to reach an advanced level of social and economic development, yet, the government is struggling to sustain its economy and feed its citizens. Some attribute the Venezuelan general strike to the struggle between socialism and imperialism. Case in point, the NOC in Venezuela was deeply affected by the country’s political system, corruption, economic mismanagement, and international conflicts.

As such, petroleum is never a nation’s salvation, therefore, depending on how petroleum industries are managed, in addition to a State’s political foreign policies, oil can be a blessing for some, and the cause of wars and much more suffering for other countries.

 

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