The Supply Conundrum

According to the US Energy Information Administration (EIA), Lebanon’s energy consumption neared 205 trillion BTU in 2008, placing the country 106th worldwide. The country also ranked 138th in energy production, and 134th in energy intensity, which measures the causation between energy consumption and GDP generation. A net energy importer, approximately 96% of Lebanon’s energy consumption is met through oil and gas imports. While the country has two coastal refineries in Zahrani and Tripoli once connected to Iraq and Saudi Arabia via pipelines, they are not currently in operation.

A big business in the country, the Association of Petroleum Importing companies (APIC) of Lebanon brings together 14 oil companies operating in the importation and distribution of petroleum products. In 2010, Lebanon’s import bill for oil and mineral fuels rose 14% in y-o-y terms to $3.7 billion.

While the country has little natural gas infrastructure, use of coal exceeds 120,000 short tons a year according to the EIA. Additionally, aside from a small contribution by hydropower and biomass, the renewable energy base, such as geothermal, solar, and wind, is currently negligible, though is a promising sector for investment.

ELECTRICITY

More than 85% of Lebanon’s power is generated at thermal power plants (TPPs), which burn almost half of the country’s oil imports. While approximately 5% comes from hydropower plants, the rest is imported from Syria and Egypt. Demand for power is estimated to be increasing at an annual rate of about 7%.

Électricité du Liban (EDL) is in charge of Lebanon’s energy sector, including the generation, transmission, and distribution of electricity. According to EDL, the company controls over 90% of the Lebanese electricity sector. Minor players in the sector include hydroelectric power plants owned by the Litani River Authority, generation concessions for hydroelectric power plants such as Nahr Ibrahim and Al Bared, and distribution concessions in Zahle, Byblos, Aley, and Bhamdoun. EDL has a total thermal production capacity of 2,038 MW spread over its seven facilities, with the largest being the Zouk TPP, at 607 MW installed capacity. Another 220.6 MW of installed capacity is provided by hydropower.

Challenges of supply and demand characterize the Lebanese power generation sector, with supply averaging 18 hours a day currently. In 2009, while average demand stood at 2,100 MW, peaks of up to 2,450 MW in summer time meant installed power generation capacity only met 70% of the country’s needs. Such power deficits are overcome by the widespread use of private diesel generators, employed by businesses and households alike. Over 2011, ructions from the so-called Arab spring have also led to shortfalls in supply, as the import of electricity was stopped from Jordan owing to the cutting of the Egypt-Jordan natural gas pipeline.

Although EDL is no longer the drain it has been on the government budget, transfers to it represented 18.8% of primary expenditures in 1H2011, or some $684 million. In GDP terms, transfers to EDL have been on the decline, falling from 5.4% of GDP in 2008 to just 3% in 2010. However, new plans to expand the generation side may see this proportion substantially increase.

ENSURING SUPPLY

Aware of the need to mitigate dependency on imported energy sources and improve power generation and distribution infrastructure, the government has initiated a new five-year plan on energy and water. The measures are aimed at turning Lebanon’s energy sector into something more befitting of the country’s economic progress. The plan foresees two-thirds of primary energy being met by natural gas, while allocating a share of approximately 12% to renewable energies. Combined with improvements on the demand side, the plan aims at reducing the loss rate across the power network and providing a 24-hour power supply.

The plan seeks to expand the generation capacity to 4,000 MW by 2014, and 5,000 MW by 2015. To fully meet current and future demand, infrastructure expansion will also entail upgrading the existing transmission and distribution networks. Furthermore, the construction of pipelines and an LNG terminal will enhance the country’s natural gas infrastructure, while a fuel-sourcing policy will be revised to allow for more low-cost energy solutions in order to reduce Lebanon’s dependency on imported fossil fuels in power generation.

The Lebanese Council of Ministers adopted the draft bill on electricity in September 2011, which envisages the allocation of $1.18 billion to the Ministry of Energy and Water for the construction of power plants with an estimated capacity of 700 MW. The law proposes a four-year plan, which once ratified by the parliament will be funded over four installments until 2014 to support the target of a 24-hour electricity supply. As far as natural gas supply is concerned, once the infrastructure is in place a majority of LNG supply will be sourced from Qatar until Lebanese offshore gas reserves are brought online in a few years. According to government officials, tenders for the country’s new LNG infrastructure will take place before the end of 2011, as LNG shipments are expected to start in 2012.

However, Lebanon does not have to wait for offshore gas production facilities to come online in order to attain a certain degree of self-sufficiency in power generation. Until local natural gas becomes available, the realization of Lebanon’s solar and wind energy potential could also represent an opportunity. In January 2011, the United Nations Development Program (UNDP) launched the National Wind Atlas of Lebanon, which argues that locally generated green energy can meet up to about 75% of the country’s power consumption. Furthermore, 57 sites have already been determined for the production of solar energy for heating water and generating electricity. Expansion on the demand front for renewable energy is expected to start with public buildings, which once successful might have spillover effects on domestic and commercial consumption. However, most in Lebanon are placing their hopes on the development of Lebanon’s offshore natural gas reserves. Should these come online, Lebanon’s energy conundrum may finally be solved.