On May 2, 2013, The Arab Center for Research and Policy Studies (ACRPS) Beirut office organized a workshop on Lebanon's potential discovery of natural gas. Dr. Wajih Kawtharani, director of the Beirut branch, opened the workshop by providing an overview of the achievements made by the Doha-based institute and a summary of its main activities, including the organization of regular symposia and meetings held by the ACRPS on pressing regional issues, the publication of over 45 books to date, the translation of authoritative foreign books, and the publication of three quarterly journals-Tabbayun, Omran, and Siyasat Arabia-respectively covering philosophical studies, social sciences, and strategic affairs. Other ACRPS ventures mentioned by Dr. Kawtharani include the establishment of an up and coming graduate studies institute, an annual prize for talented regional researchers, and a historical dictionary of the Arabic language. He also stressed the important role the ACRPS plays in covering and analyzing Arab, and other wider regional and global, events.
Following the opening address, Dr. Naji Abi Aad chaired the first session of the workshop. In reference to the discoveries of oil deposits off of the Palestinian coastline, Abi Aad explained that discussions on the discovery of Lebanese gas were still premature, comparing the situation to that of Saudi Arabia and Bahrain; while the first had one of the world's highest reserves of crude oil, the second had no significant resources.
Following this, Dr. Fadi Mughayzel presented a lecture on the "Legal Implications of the Production of Lebanese Gas" during which he pointed out that "Lebanon is making steady progress toward the exploration of petroleum within its territorial waters. In both operational and administrative terms, the country has made notable progress in the field of maritime oil activities." Mughayzel specifically mentioned four steps Lebanon has taken in this regard: passing law no. 132 in 2010, which covered maritime oil reserves; issuing directive 7,968, which set up the bylaws of an authority to govern the petroleum industry on April 7, 2012; appointing directors for that authority on November 7, 2012; and dividing the authority into six separate units: Strategic Planning, Technical and Engineering Affairs, Geology and Geophysics, Legal Affairs, Economic and Financial Affairs, and the Quality, Health, Safety and Environment. Mughayzel also pointed out that May 2 marked the beginning of a six-month exploration venture for oil reserves in Lebanese waters, scheduled to end on November 4. Mughayzel moved on to explain the key legal factors surrounding the process of the discovery of Lebanese offshore oil reserves, which include the drawing of Lebanon's maritime boundaries; the legal framework governing contractual arrangements in the petroleum sector; and the designation of the legal system that has jurisdiction of petroleum-related operations, particularly the regulations covering offshore petroleum reserves.
Mughayzel referred to the 1982 United Nations Convention on the Law of the Sea (UNCLOS), signed by 165 countries in Jamaica. Put into effect on November 16, 1994, the agreement was ratified by both Cyprus and Lebanon, but neither Israel nor Syria ratified the convention. Mughayzel elucidated the main points included within the convention, which categorized the waters off of a country's coast into: territorial waters, a contiguous zone within those territorial waters, international waters, and a continental shelf. The agreement allows countries to declare their territorial waters within the first 12 nautical miles off of their coastline, with a contiguous zone that brings it to 24 nautical miles. The relevant "Exclusive Economic Zones" (EEZ) are adjacent to a country's territorial waters, reaching a maximum of 200 nautical miles. According to Mughayzel, three maritime boundaries needed to be drawn: that between countries with opposing coastlines, which applies to maritime boundaries between Lebanon and Cyprus, between countries with adjacent shorelines, which applies to the borders between Lebanon and Syria, and those between Lebanon and the Occupied Palestinian Territories. All three of these areas include territorial waters, an exclusive economic zone, and a continental shelf.
The definition of the EEZ and the Continental Shelf entail "defining a median, parallel line [extending from the coast]. After that, any considerations relevant to arriving at a fair conclusion are taken into account." Mughayzel also explained the "equidistance principle"-a "median, parallel line" between states with adjacent shorelines-is one in which every point on the line is equidistant from "baselines" on the shores of the two countries between which the boundary is being decided.
The importance of drawing maritime borders lays, according to Mughayzel, in the need of oil companies to have "a clear legal vision ... [those oil companies] would invest [only] in areas where their status is made clear either through agreement, a court decision or the outcome of arbitration." Motivated by such legal imperatives, Lebanon declared its maritime boundaries in accordance with UNCLOS, issuing law 163 in 2011, and directive 6,433 on October 1 of that year, which defined the EEZ. In line with that directive, the area covered by Lebanon's EEZ was 22,730 km2. As Mughayzel pointed out, the declaration of that territory led to a dispute between Lebanon and Israel over an area of roughly 820 km2.
In explaining the legal and contractual context governing maritime activities, Mughayzel pointed out the differences between the practice of granting concessions based on legal contracts- licensing agreements that are akin to lease agreements made by the state with an oil company-and joint production agreements, which define a contractual agreement between a state and an oil company, or, in other words, a service contract.
Closing his lecture, Mughayzel described the Lebanese law governing marine petroleum resources as a mixed system that combines elements of the concessions-based, licensing, and contractual systems. He also pointed out that Lebanon would "reserve the right to carry out, or participate in, petroleum-related activities within specific constraints. This would leave open the creation of a national oil company in Lebanon". He emphasized that the administrative and legal framework to govern petroleum-related activities in Lebanon remained inadequate. Success in such venture, stated Mughayzel, was contingent on the extent of adherence to legislation and administrative rulings, far removed from the political and sectarian alignments commonly found Lebanon.
Adding to Mughayzel's lecture, Dr. Tareq Majzoub spoke of the many mistakes made when drawing the baselines that define maritime boundaries. Majzoub said that the issue of maritime boundaries in the Mediterranean was still unresolved, and alluded to the impact of the Arab-Israeli conflict on this issue. He suggested that Lebanon should define its maritime boundaries with the Israelis, including the 870 km2 of disputed territory, also questioning whether the state or the oil companies would have the upper hand.
A Service-based Economy and Rentierism
Dr. Butros Labaki's paper addressed whether natural gas could turn the Lebanese economy from one centered on the services sector and rentierism to one founded on production and development. Labaki envisioned two possible scenarios-one in which revenues accrued from natural gas would simply add another form of rents and another that entails the potential for onshore and offshore Lebanese gas production to be a factor in developing Lebanese manufacturing industries. According to Labaki, the "structural role of Lebanon's economy" has been increasingly service-oriented and moving in this direction for the past two centuries. He also noted that the Lebanese economy later became a rentier services sector that played a role regionally and internationally.
In discussing Lebanon's economic structures ability to accommodate a new sector based on manufactures, Dr. Labaki provided a historical context to Lebanon's development of its economy, specifically referencing the formation of the "Beirut Bloc" during the Ottoman period, and the intermediary role it played between the industrial West and the Arab Levant in the 19th century. At the time of the French Mandate, Beirut became "the economic and political capital of the French Mandate countries within the Arab Levant". This gave Lebanon a distinguished role during the period from independence until the outbreak of the civil war in 1975.
According to Labaki, many interrelated factors contributed to the rise of the service sector and its regional role, including: the separation between Lebanese and Syrian customs systems; the Palestinian Nakba; military coups in Egypt and elsewhere in the Levant; the increase in oil revenues; the rise in Arab leisure tourism in Lebanon; the "open door policy" toward foreign trade; the receptivity of Arab markets to Lebanon; banking secrecy; freedom of capital flows; a lack of consumer protection; and an increase in remittances from Lebanese migrants.
He followed this with a discussion of the period following the 1989 Taif Agreement, during which the acceleration of globalization strengthened the services and rentier foundations of the Lebanese economy. As a result of the open door policy and the free trade agreements made with Europe and a number of Arab states, legal obstacles were created to the privileges given to manufacturing industry in terms of government procurement, and a preference for imported goods. This situation increased government debt from USD 2 billion in 1990, to more than USD 60 billion in 2012, which led to a situation whereby the annual numbers of Lebanese migrating abroad was roughly double that of those who left the country during the civil war from 1975 to 1990, during which time 3 million Lebanese left their country.
Labaki moved on to examine whether the present economic structure could absorb the petroleum industry. He discussed the possibilities for the extraction and marketing of gas, before the revenues could be invested through a sovereign wealth fund. The returns from such a fund could be invested to improve Lebanon's productive industries in energy, manufactures, agriculture, animal husbandry, construction, and public works.
Labaki proposed a plan that adopted mechanisms that would invest the financial returns from the new petroleum sector, with areas in the Bekaa, the south, the north, and the periphery of Mount Lebanon as priorities for development since their need for more employment opportunities is most acute. He also proposed that health, educational, residential, and cultural services could be extended to all marginalized segments of Lebanese society.
Expanding further, he explained that there is a possibility to use natural gas as a primary material for industrial and agricultural development, as well as in consumer product sectors. According to Labaki, it would be possible to convert the gas and chemicals industry into a sector producing intermediate goods, including plastics, chemicals, medicinal products, construction materials, furniture, paints, and mechanical and electrical products. In Labaki's view, natural gas and its byproducts "practically form a part of all industrial and agricultural activities, construction, public works and energy".
Labaki stressed that for Lebanon to absorb a gas industry, the country's political, economic, and intellectual elites would need to adopt financial and economic policies that serve this purpose, meaning the completion of a sovereign wealth fund, the drafting of a plan that would prioritize the development of consumer product industries, the development of the underdeveloped peripheries, and the boosting of middle- and low-income social sectors. Lebanon would also need to ensure the completion of the transportation, irrigation, power, education, and public health infrastructures necessary to complete the transition, in addition to the establishment of networks to safeguard social security, environmental, and cultural protection. In closing, Labaki stated that the results for a plan toward the integration of a prospective hydrocarbons sector would have to be periodically reviewed to ensure that the plan to move Lebanon from a service-based to industrial economy was making progress.
Dr. Albert Dagher agreed with Labaki on the potential for Lebanon to benefit from its natural gas wealth, though he also raised concerns on what he termed to be the "Dutch Disease," in which the rise of a petroleum industry had a negative impact on other, traditional productive industries. He also emphasized the importance of using the revenues from gas and crude oil to "create the conditions needed to keep the Lebanese in Lebanon," to create a productive economy, and to "change the rules of the game" prevalent over the past 150 years. Specifically, Dagher focused on the laissez-fair policies implemented in Lebanon that have prevented the state from achieving development, and commented on other Lebanese laws that have provided imported goods with advantages over a domestic manufacturing industry. Concluding his address, Dagher stressed the importance of abandoning the policy favoring those who "control financial rents at the expense of producers".
Dr. Walid Khaddouri, a renowned expert on oil, suggested that, given that 42 global oil companies have expressed interest in obtaining licenses to operate in Lebanon, Lebanon should be optimistic about the prospects for oil and gas wealth in their country. He mentioned the 2007 Cyprus-Lebanon deal that demarcated the maritime borders between the two countries. For his part, Dr. Najeeb Issa expressed his fears of a politicized approach to the presence of oil wealth, and in the development models adopted in line with these.
Former Lebanese Ambassador to Washington, Dr. Riyad Tabbara, spoke critically of Lebanon's "rentier economy," blaming the mass exodus of 3 million Lebanese between 1975 and 2005. He categorically declaimed the choices the Lebanese state has made, saying that they "were the worst possible choices" and might lead to the loss of any prospective hydrocarbon wealth.
Lebanese Natural Gas and its Geopolitical Environment
Ambassador Tabbara chaired the second session, which included a presentation from ACRPS Researcher Zoheir Hamedi on "The Production of Lebanese Gas in a Tense Geopolitical Environment". Hamedi began his talk by defining "geopolitics" as a branch of political science concerned with how geography impacts a state's behavior, and the relationship between a state's power and the region in which it is located. From this theoretical definition, he began with an exposition and analysis of Lebanon's new geopolitical setting following prospective hydrocarbons discoveries. His analysis included the domestic political aspect-Lebanon's social and sectarian system; Lebanon's relations with neighboring states; the regional and global setting; and the role played by foreign actors, particularly the EU.
Hamedi's paper took in the regional energy setting and referred to the US Geological Survey's estimate from April 2010, which indicated that the Eastern Mediterranean Basin contained a median of 1.7 billion barrels of technically recoverable oil. In the same statement, the USGS also estimated that the same region held between 122 and 227 trillion cubic feet (TCF) of technically recoverable natural gas.
Hamedi pointed out that the discovery by Israeli companies of offshore reserves drove the Lebanese government to take an interest in the possibility of discovering similar resources, and only then was the Lebanese government propelled to take an interest in benefiting economically from offshore hydrocarbons wealth and achieving energy self-sufficiency. The Lebanese government now estimates a likely 25 TCF of natural gas in offshore reserves, driving it to bring in two Norwegian companies to carry out the preliminary seismic surveys in its territorial waters. As Hamedi pointed out, the Lebanese government pre-selected 46 international oil companies (out of a list of 54) to be allowed to bid in the licensing process for hydrocarbons discovery and production activities. It also publicized its timeframe for the issuance of those licenses, which included a pre-selection that was finalized in April 2013, a request for tenders from May to November 2013, an evaluation of tenders between November 2013 and January 2014, and the granting of petroleum exploration and production rights starting in February 2014.
Hamedi addressed the question of energy in its wider regional framework, including an overview of Israeli activities off of the Palestinian coastline, in both the Noa (off of Asqalan/Ashkelon) and Leviathan (off of Haifa) fields. He also spoke of Syrian plans with regards to confirmed reserves of oil and gas, and how these impact the country's revolution; specifically, he spoke of the August 8, 2009 Protocol between Turkey and Syria on the construction of a pipeline that would bring Arab gas to an Anatolian pipeline. Had it been put into place, this would have meant joining the Arab Gas Pipeline, which starts in Egypt and cuts through Jordan and Syria, with gas pipelines stretching from the Shah Deniz offshore field, on the Azerbaijani coast of the Caspian Sea, to European markets. Discussing energy in Turkey, and the country's expanding trade relations with Russia, Cyprus, and Greece (specifically the island of Crete), Hamedi made reference to the imposition of security concerns on the gas exports to world markets, specifically the EU, and the way that this drove Israel, Cyprus, and Greece to hold formal discussions to evaluate the economic feasibility of exporting offshore gas to Europe. Moving on to discuss the geopolitical landscape, and the new situation that may arise as a result of the discoveries, Hamedi claimed, "Lebanon remains politically unstable as a result of the ongoing, chronic [tensions] between political and sectarian leaders, especially since the onset of the Syrian revolution." The speaker added that Lebanon's state institutions suffer from "a structural flaw" in that the state "is weak due to internal conflicts and sectarian balances of power, and does not have total security of the entire territory". Speaking of Lebanon's neighbors-Syria to the north and east and Israeli-occupied Palestine to the south-Hamedi highlighted how Lebanon's tensions with Israel and the Syrian crisis have created stumbling blocks, making it impossible for Lebanon to benefit from the latest gas discoveries. For Hamedi, any gains from these discoveries would have to wait until Syria's tumultuous security situation was pacified and an Israeli-Lebanese understanding on the demarcation of maritime boundaries.
Hamedi drew the conclusion that following the disputes over maritime boundaries gripping the region after Israeli and Cypriot gas discoveries, the US has no interest in seeing another conflict erupt in the Eastern Mediterranean. Instead, Hamedi believes that Washington "hopes these latest [natural gas] discoveries will form an incentive to resolve regional complexities, toward a mutual benefiting of gas wealth". This explained, said Hamedi, why the US was quick to not only adopt Lebanon's proposal to the UN that the Israeli-Lebanese maritime boundary be demarcated, but also put forth an effort to calm tensions between Turkey, Cyprus, and Israel. In the latter case, Hamedi specifically mentioned US success in reinstating Turkish-Israeli relations. In his concluding remarks, he agreed with earlier speakers that Lebanon should work to utilize its prospective hydrocarbons wealth through a comprehensive development plan, and to avoid "falling into the trap" of complete dependence on oil revenues.
