Unexpected wealth, like winning a bet or a lottery, can make anyone’s head spin. The results can be painful, with many recipients wasting part or even all of their spoils. There is, though, something even worse – anticipated but as yet unearned wealth that you already spend in your mind even before it’s in your hands. In the words of an old fable, this is the folly of “selling the bear’s skin before killing the bear.”
The allegory fits the popular estimations of Lebanon’s oil and gas wealth. Speculations over a forthcoming Lebanese hydrocarbons boom threaten to lock the country into a cycle of rising expectations, even before a single gas field has been confirmed or a single drop of oil has been extracted.
True, this hydrocarbon wealth isn’t mere speculation, it’s supported by facts on the ground, or discovered under the seafloor rather, in the Exclusive Economic Zone off the Lebanese coast. Seismic surveys have revealed offshore geological formations that have a high probability of containing oil and gas suitable for exploitation.
These findings, the first of which date back about 20 years, were firmed up in 2002 and again more recently. And in 2010, the government responded by passing the Offshore Petroleum Resources Law as the basis for commercial exploitation and by establishing a Petroleum Authority, whose members were appointed in late 2012.
At present, several additional cabinet decrees are required as preconditions for an auction to award the first exploration licenses. Interested consortia first lined up over a year ago but submission dates have been delayed several times because the decrees couldn’t be adopted due to political instability.
Meanwhile, estimates of Lebanon’s potential hydrocarbon wealth have pushed beyond any confirmed data. One recent report by a big local bank cited estimates for gas and oil equalling more than 13 times Lebanon’s current GDP of 43 billion USD. While these numbers represent sales according to international benchmarks, they lie at the doubtful upper edge of reserve estimations. They in no way indicate Lebanon’s potential oil revenues, which are impossible to assess, even hypothetically, until the final conditions for exploitation are defined, contracts are signed and exploratory drilling proves or disproves the size of any reserves.
Yet even after contracts are signed and drilling has begun, the riches will take time to flow. The estimate is that actual oil production could commence in a decade. Until then, Lebanon will need to continue importing fuel for the production of electricity and will have to get busy developing the infrastructure to deal with the oil and gas as soon as wells start producing.
It will be challenging enough to do all this as well as create a knowledge base for the new industry while paying attention to environmental and practical concerns but other challenges loom even more fundamentally.
The Paradox of Plenty
When wealth in natural resources, especially oil and gas, is correlated against economic productivity, there’s plenty of evidence that oil wealth goes hand-in-hand with corruption, weak institutions, increased violence and loss of economic productivity.
Research shows, for example, that the governments of oil-rich countries often do not have the incentive to build strong and accountable institutions to facilitate the democratic processes vital for economic growth. Other findings indicate that oil revenues work to the detriment of sectors like manufacturing and agro-industry, which become less competitive in domestic and international markets because oil exports strengthen the currency.
This research has allowed economists to explain puzzling observations in oil-rich countries like the stymied growth of per-capita GDP, where the economic downsides of resource wealth are popularised by the term ‘resource curse’.
More recent research challenges and appears to have debunked the ‘curse’ theory as a universally applicable model but that doesn’t mean that the dangers should be dismissed. On the contrary, the growing body of evidence suggests that countries must approach the exploitation of mineral wealth with care and take appropriate policy measures to avert the negative impacts of a resource boom.
Before the gold rush
In the past two years, oil and gas prospects have infected some sectors with a gold rush mentality. Workshops and investment meetings on oil and gas have proliferated alongside announcements of specialised consultancies, law offices and petroleum services companies.
The environmental and social risks posed by oil have incensed civil society activists and economists have pointed out the oil economy’s potential negative outcomes. Meanwhile, progress towards actual exploration and exploitation has been slower than expected.
While speculations over Lebanon’s future oil wealth appears pointless, all evidence from regional oil-exporting countries indicates that it will give the country a huge economic boost and remedy some of Lebanon’s deep-seated issues, like the crippling debt-to-GDP ratio and insufficient electricity capacity.
As violence and corruption, along with inefficiency, have long posed dangers to the country, there’s also no doubt that oil wealth will bring specific, concomitant risks. Even leaving aside the interference by regional geopolitics, the present state of Lebanese decision-making only enforces the impression that if the country is to profit from whatever wealth may lie below it, the ambiguities of local policy-making must be addressed by building new and fully accountable state institutions .
Lebanon has a history as a resource-rich country, producing cedar and purple dye for the ancient world. As is likely with any future oil boom, those episodes confirm that it is their entrepreneurial spirit, adaptability and ingenuity that are the most enduring assets of the Lebanese.
