LET THERE BE LIGHT

Lebanon 2013 | ENERGY | REVIEW: ENERGY

Seeing the promising prospect of offshore gas reserves, Lebanon could become a hydrocarbons exporter over the next decade. Meanwhile, the government has embraced an ambitious expansion plan for the ailing electricity sector to end the country's chronic po

In 2012, Lebanon imported 6.6 million tons of gasoline, diesel, fuel oil, and natural gas at a cost of $5.9 billion, which represented no less than 27.6% of the nation's total imports. However, it should be noted that although the fuel bill witnessed a 31.8% surge that year, this was mainly due to a rise in the re-export and smuggling of diesel to war-torn Syria, offsetting the smuggling of oil in the opposite direction from previous years.

Nearly half of the imported fuel is needed to run Lebanon's outdated power plants, while the remainder largely goes to the country's impressive fleet on wheels. With an average of one car for every three inhabitants, Lebanon has one of the highest car ownership ratios in the world.

Most fuel arrives by ship, as two pipelines ceased to deliver Saudi and Iraqi oil in 1976 and 2003, respectively. As a consequence, Lebanon's only oil refineries in Tripoli and Zahrawi have since shut down. In 2005, a pipeline with a capacity of 1.5 billion cubic meters of natural gas annually was completed between Syria and Beddawi in the north of Lebanon, yet never inaugurated.

Since Syria was named among the suspects behind the assassination of Lebanon's former Prime Minister Rafic Hariri, Damascus simply refused to open the tap. Finally, in 2009 Lebanon was linked to the Arab Gas Pipeline, but no Egyptian gas has been delivered since late 2010 due to a series of bomb explosions targeting Egypt's infrastructure in the Sinai Peninsula.

Spectrum, one of three firms charged with the seismic survey of Lebanon's 22,000 square kilometers plus of territorial waters and exclusive economic zone, estimated the seabed off the Lebanese coast could be home to some 25 trillion cubic feet of gas and several small oil fields.

However, creating the right regulatory and institutional framework to enable hydrocarbon exploration and production has so far proven to be a long and bumpy road for Lebanon. On April 18, 2013, Lebanon's Petroleum Authority announced that 46 companies had successfully qualified to take part in the first bidding round, which was due to take place in May.

Due to the fall of Lebanon's cabinet, however, not a single exploration and production agreement had been signed by October 4, when caretaker Minister of Energy and Water Gebran Bassil announced that bidding would not start before January 2014.

POWER TO THE PEOPLE

While interim Prime Minister Najib Mikati called for Lebanon's future gas revenues to be used for the reduction of the country's massive public debt, most ordinary Lebanese hope the offshore riches will also benefit the country's struggling electricity sector. Lebanon has been burdened with chronic power shortages for many years.

The state-owned firm Électricité du Liban (EDL) is charged with the generation, transmission, and distribution of electricity. It controls over 90% of the sector, while the remainder is the hands of private partners that own concessions for hydropower generation and distribution.

EDL has seven thermal and three hydroelectric power plants with a capacity of 2,038 MW and 220.6 MW, respectively. However, according to a 2010 policy paper issued by the Ministry of Energy and Water, the capacity of Lebanon's conventional power plants amounts to only 1,685 MW, due to technical difficulties at both the generation and distribution level.

As peak demand in summer amounts up to 3,000 MW, it should not come as a surprise that electricity supply in 2010 averaged only 21.2 hours for the greater Beirut area and 18 hours for the whole country. To bridge the gap, many Lebanese households are linked up to private power generators at an average cost of $150 a month. Meanwhile, electricity demand is growing at a rate of 7% annually.

To face the current shortages and future growth, the ministry launched an expansion plan in 2010 that foresees a generating capacity of 4,000 MW and 5,000 MW in 2014 and 2015, respectively. It aims, among other things, to build two new power plants with a capacity of 700 MW, as well as to rehabilitate and upgrade existing power plants, while enhancing the role of the private sector.

Ideally, Lebanon would like to see a complete gasification of the electricity sector, which would include a $450 million coastal gas pipeline connecting all major power plants and a liquefied natural gas (LNG) terminal in either Salaata or Zahrani. The use of natural gas would also help ease the burden on Lebanon's treasury.

According to figures released by the Ministry of Finance, transfers to EDL totaled $724.5 million in the first four months of 2013 alone. Natural gas comes at a cost of some $400 per ton, while the heavy fuel and diesel currently burnt to produce electricity costs between $700 and $1,200 per ton.

However, even though Lebanon's parliament, in September 2011, passed a $1.2 billion bill to construct two gas-fuelled power plants and help renovate existing facilities, it was all but clear by the end of 2013 that Lebanon was not even close to achieving a generation capacity of 4,000 MW by 2014.

Arguably, the only positive development in 2013 was the arrival of two Turkish electricity barges with a capacity of some 270 MW annually. According to Minister Gebran “the power ships do not represent an ultimate solution to the electricity problem but a three-year temporary solution to allow the rehabilitation of existing, conventional power plants at Jiyeh and Zouk."

The upgrades, due to be completed in 2014, will add 272 MW of capacity to the grid. By the end of 2013, no construction work on a gas pipeline, LNG terminal, or power plant was in sight.

“Lebanon has formulated a multitude of electricity reform plans since the mid-1990s," energy consultant Roudi Baroudi told TBY. “No matter what the political color, most were good plans. The problem is that there is no political consensus, as some parties have a vested interest maintaining the status quo."

AT THE PUMP

Every Wednesday the government sets the price for gasoline, which in October 2013 stood at $1.10 per liter. According to the Ministry of Energy and Water, 67% of the gasoline price is a reflection of the purchasing price on international markets, 22% are government fees, including customs and VAT, 9% are distribution and marketing profits, while the remaining 2% covers shipping and transportation costs.

The estimated $1.2 billion market is dominated by the Association of Petroleum Importing Companies (APIC), which consists of 14 oil companies active in the importation and distribution of petroleum products. However, out of a total of some 3,250 gas stations in Lebanon, only 1,450 possess all the required licenses.

“With regard to the downstream part of the business, there are too many players," said Maroun N. Chammas, Vice-Chairman and General Manager of Medco, which with 183 gas stations and some 900 employees is arguably Lebanon's market leader.

“The gasoline market is not a free market," he continued. “It is a free market in terms of imports, but it is not free in terms of pricing. So, you can get a license to import a product, but every company has to abide by the price the government sets. Oil companies have requested to review the policy, but the government does not want to pass on costs to the consumer. This is a bit paradoxical, because on the one hand we are asked to always perform better and provide the best service, while on the other hand one cannot provide good service if one is not paid adequately."

Both oil companies and consumers have called upon the government to reduce taxes, yet that is hardly viable considering the country's national debt, which amounted to $55.4 billion or 136.4% of GDP by mid-2013. Reducing the fuel tax is only an option if indeed one day offshore gas is found. Yet, even if bidding starts as scheduled in early 2014, that rabbit is not likely to jump out of the hat before 2018.