Lebanon’s oil and gas: Five things municipalities should be worried about

Perhaps this is not a great time to talk about Lebanon’s oil and gas prospects given the more pressing political and security issues that have engulfed the country in the last few days.

Had Mr. Hariri not “resigned”, our government should by now have officially considered the bid it received for the offshore blocks that are open for oil and gas development. No doubt, increased political uncertainty can be frustrating for the bidding consortium, and also for the many stakeholders involved in the sector.

Speaking of stakeholders, recently, some of the active NGOs and donors started investing in capacity building projects that aim to empower and educate local officials about oil and gas development and how it might affect their communities.

Any effort to promote awareness and engagement of local governments in Lebanon in the petroleum sector is commendable, and should be encouraged. After all, no one cares more about a region than those who reside in it.

Participation and consultation of municipalities in the ongoing planning and assessment phase done on the governmental and ministerial levels is of paramount importance because it leads to a better understanding of the local needs, constraints and impacts. Also, it builds a sense of ownership among the local population.

While searching for a role to play, municipalities and local entities should consider the following five issues/tradeoffs before getting carried away by promises of economic prosperity:

1. A “price” has to be paid

Large infrastructure projects are well known to have a detrimental impact on the local environment through the increase of emissions, disruption of communities, noise, etc. While these are global impacts of any large infrastructure project, offshore oil and gas projects can be linked to specific mechanisms of environmental degradation such as seawater pollution, disrupting economic and social activities like tourism and fishing.

2. Oil spill can kill

The oil and gas industry often claim high levels of safe operation. However, similar to other potentially dangerous industries, the question is not if an accident will happen but rather if it could happen. The Deepwater Horizon catastrophe in the Gulf of Mexico in 2010 is still alive in memory and demonstrates that oil and gas drilling is very dangerous process, and could potentially induce irreparable damage on the environmental and societal levels.

*Feedback: Drilling will take place deep offshore, 20 to 100 km from the shore. Any catastrophe will have a national impact rather than regional impact.

3. It takes two to tango!

It is absolutely legitimate for local governments to demand a role (at least a consulting one) in the planning of Lebanon’s oil and gas sectors, but the question then, are these local entities ready or capable of playing a role if they were given the chance?

I really don’t know the answer. But one may argue that Lebanon’s municipalities, or large number of them; lack the human capacity and /or financial resources that would allow them to play a positive role.

Of course, this strengthens the case of the recent drive to empower local leaders that I mentioned earlier. But until a certain level of education and empowerment happens, involving incompetent and under educated (in the oil and gas sense) would actually backfire by increasing the chances of bad management of local resources.

4. Jobs creation?

The impact of oil and gas investments on the economic welfare of local communities is well studied. An aggressively growing local economy, compared to less privileged neighboring regions, often suffers from an oversupply of “external” workforce after the initial demand shock in the local job market. This may lead to reduced compensations of local workforce; and inducing socio-economic strains.

It should be noted, also, that the oil and gas industry is not labor intensive (in the operational sense). But more importantly, it is self-contained as big companies bring their own teams and machinery. This self-sufficiency is what allows them to develop fields in remote areas, but it also means that the economic benefits offered to local communities may not be as one hopes.

5. The Dutch disease

This is a known phenomenon where investing in a single sector has an opportunity cost related to undermining investments in other, potentially more promising sectors. Clearly, this is more of a national issue rather than a local one, but it could also influence local distribution of resources. What makes things more complex though is the price volatility of oil and gas making this opportunity cost hard to predict.