Forbidden no more

With sanctions on the way out, only political barriers prevent Iranian investments in Lebanon’s energy sector

Lebanon was most likely a marginal topic on the sideline of nuclear discussions in Vienna, but the nuclear agreement between Iran and the P5+1 group is expected to have direct implications on local Lebanese politics. Since the deadlock in Lebanon is largely a reflection of regional deadlock, it would be reasonable to expect a possible regional appeasement to contribute to unlocking the situation in Lebanon. The immediate post-Iran deal period is expected to be a period of hesitation and testing until the time is ripe for broad arrangements. While the overall regional balance is expected to tip in favor of the Iranians, in Lebanon, arrangements between Iranian-backed factions and Saudi-backed factions are inevitable, both at the political and business levels.

While the world prepares for investments in Iran, a Lebanese-centered approach considers how the deal could free up Iranian investments in Lebanon, particularly in the energy sector, long limited by sanctions, and a certain reluctance from some Lebanese. In the past, Iran expressed repeated interest in the Lebanese energy sector. Tehran offered to rehabilitate the country’s two refineries (currently inactive and used for storage only), build a power plant under favorable terms, and supply Lebanon with oil and natural gas. These projects faced a number of challenges and their feasibility was not always ensured.

SUPPLYING LEBANON WITH GAS AND/OR OIL

Supplying Lebanon with gas faces a number of challenges. Gas can be exported either by pipelines or chilled to a liquid form and transported by specialized tankers. The first scenario, (exporting gas to Lebanon via pipeline), requires building the pipeline which has to pass through some of the most unstable countries in the world. With regards to the second scenario, Iran had several projects for building liquefied natural gas (LNG) plants and even started working on one, but work was suspended due to sanctions. Developing LNG capabilities is costly and it is going to take Iran several years to build the necessary infrastructure, even if Iran is considering a floating LNG platform. Supplying Lebanon with gas is not feasible in the short term, but could become a possibility a few years down the road. On the other hand, supplying Lebanon with oil and other petroleum products would be less problematic.

ELECTRICITY

Lebanese demand stands at approximately 2,500 MW per day (with peak demand exceeding 3,000 MW), while the available capacity is limited to 1,500 MW, causing severe shortages, covered mostly by private diesel generators. The 2010 Policy Paper for the Electricity Sector proposes measures to improve performance, and, more significantly, cut the energy bill by $1.5-2 billion per year. The paper suggests achieving this by reducing dependency on expensive imported oil, and gradually converting existing power plants to operate using natural gas. At a conference in December 2014, an LPA board member estimated that 65 percent of the power generation capacity could be generated using gas. Power plants in Deir Ammar and Zahrani are fit and ready to receive natural gas. With some minor modifications, two other power plants, in Tyre and Baalbeck, could be made to receive natural gas. LNG import terminals and a coastal pipeline are planned to support the implementation of the conversion process. The pipeline is set to supply major power plants along the way, in addition to factories and industrial plants.

Tehran has repeatedly proposed to supply Lebanon with electricity over the past few years (Iran exports around 25,000 MW per day and has a surplus of production estimated at around 6,000 MW), and build additional power plants at favorable conditions.

TEHRAN HAS REPEATEDLY PROPOSED TO SUPPLY LEBANON WITH ELECTRICITY

PARTICIPATION IN EXPLOITATION OF POTENTIAL OIL & GAS RESOURCES IN LEBANON

In 2013, the only Iranian company that sought to prequalify for Lebanon’s first licensing round, the National Iranian Drilling Corporation, failed to do so. Also, notably absent