Audi: Le­banon’s share from gas over $200B

Es­ti­mate part of bank’s fourth quar­ter re­port on coun­try’s econ­omy

The Daily Star (Lebanon) - - BUSINESS -

BEIRUT: 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 the Feb. 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.

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,” 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. –

Bank Audi stressed the wind­fall from oil and gas would dra­mat­i­cally change the face of Le­banon.

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