Lebanon must manage expectations as offshore drilling begins
on 3/2/2020

This Article by Diana Kaissy was originally published on Al Arabiya English Webiste.


February 27, 2020, marked the first day for drilling for oil and gas in Lebanon’s offshore block number 4. And all hopes are hanging on the results from Byblos – the name given to the well. This is the first well to be drilled, ever, in Lebanon’s offshore exclusive economic zone.

While I have to confess that excitement and anticipation are running through my veins, I also have to be candid and say that feelings of apprehension and caution are also present.

Yes, Lebanon will be drilling its first offshore exploratory well, but this is the first step taken on a long and unpredictable road. Exploitation of natural resources, as experienced by so many other countries is a lengthy process often etched with a high number of uncertainties, bad luck, volatilities, and fickle geopolitical games. But it is also ordained by some rare, yet great beautiful journeys.

Since 2010, the Lebanese state has been pushing forward on the development of this nascent oil and gas sector. With substantial support from the Norwegian government, Lebanon has been able to benefit from a number of good practices and international experiences.

Civil society has also been quite active, especially in ensuring that certain necessary transparency and accountability measures are adopted. Organizations have successfully advocated for contract disclosures, ratification of transparency laws, and adjustments of certain regulations, assessments, and policies. Additionally, civil society organizations in Lebanon have played a major role in leveraging the citizens’ awareness around key issues related to the sector.

But the key to ensuring that we continue developing this sector in a sound manner is that we do not “cherry-pick” from the bowl of best practices. Indeed, we should also be wary of not eclectically choosing which bad practices to avoid.

The headlines for this phase of offshore drilling should be “managing expectations.”

Lebanon is not yet an oil-rich country. It is definitely not an oil-producing country. Lebanon is drilling the first offshore well where there is no more than 25 percent chance for making a discovery. The process of turning any discovery into revenue is a long one that should be regarded with patience and wisdom by the state and citizens.

In many countries with weak political institutions, such as Lebanon, economic growth begins to decline before oil or gas is produced – a phenomenon called pre-source curse.

Ghana is a famous example of the pre-source curse. Between 2007 and 2013 Ghana had steady economic growth that averaged 7 percent. Though the African nation first found oil in the 1970s, it wasn’t until this period that Ghana made a major offshore oil discovery. Ghana’s president John Kufuor proclaimed, “Even without oil we are doing well… With oil as a shot in the arm, we are going to fly.”

A fast forward to today shows that Ghana is not flying. Besides experiencing a drop in growth drop to 4 percent, the discovery and the mismanagement of expectations has ushered economically imprudent behaviors exhibited through heavy borrowing and excessive spending.

Another challenge was Ghana’s exposure to the oil price crash in 2014. A new government took over in 2017 but the crisis continues. Lebanon should learn from Ghana’s experience and manage its expectations.

Post-revolution Lebanon is witnessing an economic and financial meltdown. With no robust fiscal rules, a lack of economic and fiscal reforms and an unprecedented level of corruption, the economy is crashing. The jubilation at the start of drilling or even a discovery that may happen in a year or more should not prompt a borrowing spree, in a re-run of the reform-driven loans promised by donors at the 2018 CEDRE conference, that are yet to materialize.

Mozambique is another bad model. After discovering quantities of gas offshore, the government started an huge program of borrowing. Today, it is experiencing a devastating economic regression.

Lebanon now must focus on the much needed economic, fiscal and political reforms that will help it have a soft landing. Anti-corruption laws need to be passed. Current transparency laws need to be implemented. Transparency and accountability measures should be followed.

The government should hold open parliamentary committee sessions where citizens could observe and engage constructively to support the reforms. People need a seat at the table and not fed with false hopes that only serve to fuel political victories.

Drilling is happening and exploration will take time. Let us stop day-dreaming about the magic wand we think we discovered and come back to Earth. The state needs to focus on the reforms that need to be implemented so that Lebanon’s future generations may experience a resource blessing, instead of a curse.

Full Article on the link here

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