---
title: "The Challenges and Economic Prospects of Lebanon's Oil and Gas | Ghazi Mahmoud"
url: https://ghazimahmoud.com/en/articles/2023-04-20-402fc5/
lang: en
description: "Natural resources in general, and hydrocarbon resources in particular, form part of the real wealth of nations; they are the natural capital from which other forms of capital are formed, giving their revenues a fundamental role in the process of economic development."
---

[All articles](https://ghazimahmoud.com/en/articles/)

# The Challenges and Economic Prospects of Lebanon's Oil and Gas

[Brig. Gen. (Ret.) Dr. Ghazi Mahmoud](https://ghazimahmoud.com/en/about/)

20 Apr 2023 · 9 min read

[Energy, oil and gas](https://ghazimahmoud.com/en/articles/energy/)[The world economy](https://ghazimahmoud.com/en/articles/world/)

Natural resources in general, and hydrocarbon resources in particular, form part of the real wealth of nations; they are the natural capital from which other forms of capital are formed, giving their revenues a fundamental role in the process of economic development. Hydrocarbon resources remain among the most important natural resources owing to the dense energy they store, which since the Industrial Revolution has constituted a major factor in accelerating production and raising productivity. Countries rich in hydrocarbon resources often enjoy the opportunity to generate substantial financial revenues. Yet the mere availability of natural resources in a given country does not necessarily mean that it will turn into a wealthy nation, nor is it a cause of its growth and the prosperity of its citizens; indeed, it may even bring about what is known as the resource curse. With good governance, transparent institutions, and modern administration, however, it is possible to overcome the curse and turn it into an opportunity for human and economic development, especially given that these resources are depletable by nature and destined for exhaustion, which requires investing their revenues in new productive projects that achieve the sustainability of the desired development. It is worth noting that oil and gas returns and revenues from other natural resources are neither profit nor net income, but simply represent a rearrangement of the state's asset portfolio between physical assets and monetary assets. Exploiting hydrocarbon and other resources leads to the "loss" of these resources on the one hand, and to the creation of new investment resources on the other. In other words, it is an investment that exhausts resources in order to create new ones; it is "creative destruction", in the expression of Joseph Schumpeter. Hydrocarbon resources are characterised by ease of transport and storage as well as versatility of use, which makes their cost relatively low and gives them the role of a magnet for productive activities and various economic sectors, from transport to agriculture, industry, and trade alike. The role of these resources goes beyond the economic aspect of meeting the needs of producing countries and creating a developmental dynamic that contributes to maximising their national wealth, to play a strategic role in the global economy, influencing and being influenced by the course of global economic developments. While seismic surveys of the waters of Lebanon's Exclusive Economic Zone have indicated the availability of promising reserves of gas and oil, offering Lebanon an opportunity to resolve its financial and economic crises should it become a producing country, this simultaneously poses challenges that the country must prepare to confront and overcome. Exploiting natural resources in general, and hydrocarbon resources in particular, entails negative repercussions that threaten expected gains, requiring that these resources be handled professionally and responsibly, and that plans and programmes be drawn up to ensure the optimal exploitation of available resources. Challenges facing Lebanon's oil and gas: Lebanon faces a set of challenges that threaten its ability to benefit optimally from its promised hydrocarbon reserves, especially as it is in the process of entering the extractive industry for the first time. These challenges range from technical and environmental issues to the transition towards renewable and clean energy and the sound management of anticipated financial inflows, among other challenges. The first of these challenges lies in Lebanon's lack of the technical infrastructure that would allow it to control the course of drilling and production. Because Lebanon does not possess the appropriate equipment, it is compelled to rely on international oil companies for offshore drilling and exploration activities, and subsequently for production and field development, at a time when forecasts point to rising demand for offshore drilling rigs to meet exploration activities, which rose to a ten-year high during the current year, making it more difficult for Lebanon to control the appropriate timing to commence drilling and, consequently, to control production. No less important than the aforementioned technical challenges are the challenges represented by administrative decay and the administration's inability to rehabilitate infrastructure, including storage tanks and equipment at the Tripoli and Zahrani refineries, to store the oil slated for extraction. The administration's incapacity is also evident in its failure to seek the rehabilitation of these two refineries, or at least one of them, to meet the domestic market's future needs for petroleum derivatives, bearing in mind that it is possible to reconnect the Tripoli refinery with Iraq, to the simultaneous benefit of both Lebanon and Iraq. Also falling within the framework of the challenges facing Lebanon on the eve of extracting oil and gas from beneath its sea waters is the shortage of specialised personnel capable of monitoring drilling and extraction operations in a manner that safeguards the national interest. Although the extractive industry does not create job opportunities on a par with other industries and is limited to a small number of specialists in this field, this does not preclude incorporating disciplines related to this industry into the curricula of vocational schools and university programmes, and restricting these opportunities to qualified Lebanese nationals. Further risks and challenges include overestimating reserves and consequently overestimating the revenues that can be expected from exploiting anticipated resources, leading to expanded public spending and borrowing against revenues before they materialise. The challenges of overestimating revenues are compounded by fluctuations in oil and gas prices, which cause volatility in these revenues, hindering development plans and delaying the growth sought from exploiting hydrocarbon resources. Environmental protection, in turn, poses a challenge for countries rich in natural resources, given the damage accompanying their exploitation caused by drilling and transport operations, in addition to storage and refining facilities and the risks of leaks and spills. This requires sound management in exploiting these resources to prevent harm to the environment, since remediating such damage entails costs that could wipe out a large portion of the realised revenues. The accelerating challenge facing hydrocarbon resources lies in global efforts to reduce emissions and ultimately bring them to an end through renewable and clean energy, particularly solar and wind energy in addition to hydropower, especially as the cost of generating energy from new sources is declining markedly and competing with hydrocarbon energy. The emerging challenge, meanwhile, lies in hydrogen, which has entered the competition in generating alternative and clean energy, while the energy that nuclear fusion could generate is heading towards becoming one of the clean energy sources of the future. Preserving the right of future generations to their homeland's wealth also poses a challenge to the stewards of anticipated oil and gas returns, making it imperative to establish a sovereign investment fund tasked with investing part of these returns to generate new revenues that guarantee sustainable development in the service of current and future generations alike. These funds and their objectives vary, from saving for future generations, to achieving economic stability and protecting the national economy from fluctuations in global commodity markets, all the way to securing pensions and covering future pension liabilities without the need for individual contributions. Economic prospects for Lebanon's oil and gas: In contrast to the challenges facing hydrocarbon resources, the oil and gas sector at the international level enjoys an infrastructure covering global markets that took decades to build, commands the largest market capitalisation in the world, and constitutes one of the most important elements of its strength and continuity. Exploiting these resources is characterised by abundant financial inflows compared with various other economic activities. The key principle is that the financial revenues provided by oil and gas production be used to create alternative income-generating assets. The economic prospects of oil and gas revenues can be discerned through their role in reducing the budget deficit and restoring balance to the balance of payments on the one hand, and improving the real exchange rate of the national currency and curbing inflation on the other. Their economic prospects also lie in stimulating the productive agricultural and industrial sectors and increasing their share of gross domestic product, which is bound to rise overall as a result of these financial inflows. Creating an appropriate environment for economic growth and stimulating sustainable development requires good governance of expected revenues and responsible management that anticipates the challenges of this sector on the one hand and the opportunities they can provide on the other. Achieving these objectives calls for drawing up appropriate future plans to invest these revenues and the material wealth they represent, and working to convert them into human and productive capital that raises the rate of economic growth and ensures its sustainability. Exploiting oil and gas, along with the financial inflows it provides, enables countries suffering from high indebtedness, as is the case with Lebanon today, to reduce their debt, both domestic and external. Oil and gas revenues contribute to curbing capital scarcity in domestic financial markets, lowering the cost of external borrowing, enhancing the investment climate, and stimulating new investments. These inflows also contribute to strengthening food security, increasing incomes allocated to consumption, and improving living standards. In addition to the financial revenues that may result from exploiting oil and gas, these resources, and gas in particular, can play a direct role in halting imports of fuel oil for electricity generation, with the consequent reduction in the import bill. The annual value of fuel oil imports for power plants amounted to more than 2 billion US dollars, while the average annual import of petroleum derivatives stood at no less than 4.4 billion US dollars during the period 2017-2021. The greatest savings, however, will be achieved when Lebanon is able to secure its needs for petroleum derivatives through domestic refineries. Confronting the challenges that may stand in the way of hydrocarbon wealth and translating the aforementioned economic opportunities that its exploitation may offer require, first and last, the establishment of a state of law and institutions that guarantees the good governance of oil and gas revenues and their management to achieve sustainable development: a state that adopts merit in selecting employees as the criterion for appointments, alongside transparency in administration and the right of access to information, allowing every interested citizen to monitor the administration's performance and hold it accountable. A state of law and institutions requires the existence of an independent and fair judiciary that ensures accountability, a judiciary distinguished by its prompt adjudication of the cases before it without haste. The desired judiciary is an honest and transparent one that combats corruption, imposes the severest penalties on perpetrators, and protects the wronged, for justice is neither achieved nor upheld if it equates the innocent with the perpetrator. In short, no economic prospects can be hoped for from the oil and gas resources whose presence beneath the waters of Lebanon's Exclusive Economic Zone has been indicated by seismic surveys unless a state of law and institutions is established, and no political and economic reforms can be hoped for prior to its establishment. The sectarian and confessional quota system has impoverished the country and squandered the wealth and savings of its citizens, and the real test lies not so much in the size of the reserves that may be found and the revenues that may be generated as in investing them soundly and ensuring that their revenues are used responsibly and transparently.

Translated from Arabic with AI. [Read it in Arabic](https://ghazimahmoud.com/articles/2023-04-20-402fc5/)

## Published in

- [LinkedIn](https://www.linkedin.com/pulse/%D8%AA%D8%AD%D8%AF%D9%8A%D8%A7%D8%AA-%D9%86%D9%81%D8%B7-%D9%88%D8%BA%D8%A7%D8%B2-%D9%84%D8%A8%D9%86%D8%A7%D9%86-%D9%88%D8%A2%D9%81%D8%A7%D9%82%D9%87%D9%85%D8%A7%D8%A7%D9%84%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF%D9%8A%D8%A9-ghazi-mahmoud/)
- [OZ Arab Media](https://ozarab.media/تحديات-نفط-وغاز-لبنان-وآفاقهما-الاقتص/)

## More on energy, oil and gas

[All articles on this subject](https://ghazimahmoud.com/en/articles/energy/)

[10 Apr 2023 · The Repercussions and Dimensions of Cutting Oil Production · LinkedIn, OZ Arab Media ](https://ghazimahmoud.com/en/articles/2023-04-10-f45aad/)

[29 Mar 2023 · Accelerating Collapse Heightens the Need for Renewable Energy · LinkedIn ](https://ghazimahmoud.com/en/articles/2023-03-29-087b08/)

[24 Mar 2023 · So That Lebanon's Anticipated Oil and Gas Revenues Do Not Become a Curse · LinkedIn, OZ Arab Media ](https://ghazimahmoud.com/en/articles/2023-03-24-224ae6/)