Bank Audi estimated that Lebanon will generate over $200 billion in net revenues from the promising offshore gas exploration, an income which would drastically reduce the public debt and stimulate the economy.
This estimation was part of Bank Audi’s fourth quarter report on Lebanon that covered the main economic activities for the entire 2017.
“Based on the current gas and oil prices and on the basis of Lebanon’s 96 trillion cubic feet of gas reserves and 865 million barrels of oil reserves, gross oil and gas reserves can amount to circa $400 billion and net proceeds to the government are estimated at more than $200 billion [covering area fees, royalties, profit sharing and taxes], the equivalent of circa three times the size of its current public indebtedness,” the report said.
But oil experts stress that it is too early to project the potential revenues from gas and oil exploration which should start in 2019 if everything went according to plan.
The consortium of the three international oil companies is expected to sign the contract in a grand ceremony at the Baabda Palace on February 9.
“It is expected that the exploration phase would take almost five years, to be followed by a couple of years of infrastructural preparation before the generation of revenues from such a lucrative sector. Based on the bid, the state would receive an estimated 65 percent to 71 percent of the revenue from offshore energy Block 4 and 55 percent to 63 percent from Block 9,” the report said.
Bank Audi stressed that the windfall revenues from oil and gas in the future would dramatically change the face of Lebanon.
“As the extraction of oil and gas from Lebanon’s territories will start to materialize, it can move the country from one state to a completely different one. Altering the adaptation of power generation facilities from gas oil to natural gas could narrow significantly the power supply deficit which currently exceeds $1 billion per year. Also, the strategic position of Lebanon endows it with diverse export options;
Hydrocarbons can be exported toward Turkey or Europe through pipelines or compressed natural gas vessels, toward Asia through liquefied natural gas tankers, or toward Syria and the neighboring region through electricity,” Audi said.
The report was also upbeat about the prospects of reducing the debt to GDP ratio to less than 100 percent once gas starts gushing.
“According to our estimates, the oil and gas extraction phase will turn the public deficit into a surplus five years after the start of the extraction, while reducing debt/GDP to below the 100 percent threshold at the same horizon. Additionally, the industry will have spillover effects on a number of sector creating numerous business and employment opportunities in real estate development services, hotels and accommodation, insurance services, rental and leasing, financial services and others,” Bank Audi said.
It called on the authorities to carry out structural reforms before the actual gas exploration.
“As such, the oil and gas sector provides a genuine opportunity for a soft landing in the Lebanese economy and in its shaky public finance conditions. Having said that, Lebanon’s authorities should not sleep on their laurels and await for the proceeds of such a long term venture. Structural reforms are imminently needed to put the economy on a sustainable growth path in the short and middle run and ensure a continuity of the Lebanese relative resilience that the country has known over the past couple of decades,” Audi said.
It also underlined the importance of setting up the sovereign wealth fund to manage the revenues from oil and gas exploration.
“Lebanon will be setting up a sovereign wealth fund to channel the profits from the hydrocarbons E&P activities. Sovereign wealth funds are differentiated from central banks, as they can venture in riskier investment and in longer durations. Additionally, the SWFs ensure both the stabilization of the government budget by balancing the volatility in revenues and the combat of inflation by absorbing excess liquidity,” the report said.
