Could Natural Gas Save Lebanon? Nah.

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By Ghassan KaramMideast Egypt Pipeline Explosion

No one doubts that laws of natural science; such as gravity and entropy, the second law of thermodynamics; are universal. The same logic leads us to believe also that many characteristics that could be viewed as intrinsic are non negotiable and non alienable. Thomas Jefferson might have expressed the above sentiment the best when he declared that rights should be viewed as “derived from the laws of nature and not as the gift of their chief magistrate”.

Economics, by and large, is also a field that operates subject to universal principals that do not depend on race, geography or political structure of the state under consideration. Excess supply of any commodity or service, all other things being equal will lead to a decrease in the price being asked for such a good. By the same token whenever the sovereign increases money supply then the monetary unit would tend to lose part of its purchasing power irrespective whether one is dealing with Dinars, Rupees or Dollars. All the above is simple, clear and is held to be true by all. Given the universality of such believes then how can one explain the irrational idea that Lebanon is exceptional, at least when it is viewed through the prism of national debt. It is only logical that when a large number of countries violate a particular standard and each of them gets punished for it then one is to expect that any state that is to violate such a metric would be doing so at its own risk. Lebanon has the fourth highest Debt/GDP ratio in the world, if one is to discount St Kitts and Antigua. Only Japan, Zimbabwe and Greece have a higher Debt/GDP ratio while each of the countries that had met major challenges arising from their debt had a lighter debt burden than Lebanon (Italy, Portugal, Iceland, Ireland, Spain and France).

And yet we carry on as if there is no problem, as if we are exceptional, as if we can defy the laws of gravity. The lack of attention to such a major challenge is disheartening. Even the Ministry of Finance does not bother to publish updated information about this crucial issue; there most recent figures are as of December 2010, only two and a half years behind the times. Since Lebanon seems to have escaped the fate of other countries with high sovereign debt so far it is only fair to speculate about the factors that have led to this. The most common reasons given are the following:

  1. Lebanon is a small economy and so its economic problems do not attract as much attention as larger states.
  2. Lebanon’s geopolitical location in a sensitive part of the world encourages many states to lend a helpful hand and many others to pretend that nothing is amiss.
  3. The almost 290 tons of Gold held by the central bank are valued at about $15 billion.
  4. A constant in flow of funds from the Lebanese working all over the world.
  5. The potential income from the off shore natural gas deposits.

 

What might be surprising, even shocking to many is that none of the above is a reason to rejoice, not even the potential income from natural gas if and when it is discovered and commercialized. A rough but realistic estimate of the potential revenue from natural gas will be under a billion dollars per year when the interest on the debt service is over $4 billion. Israel has just concluded selling 30% of its Leviathan field to an Australian company for $1.25 billion. Yes natural gas will help but it is not the panacea that it is hyped up to be. (Note the childish ads that say”Now that we have fossils we can build an army”). That would be such a waste.

But even if one is to dismiss all of the above and to observe the findings of the study that has become the gold standard for dealing with deficits, national debt and economic growth by Rogof and Rheinhart. They have shown very clearly that for over 300 years economic growth of an economy becomes highly constrained by its national debt especially when that debt gets to be about 9—95percent of the GDP. Lebanon’s is over 140 and will go higher as the rate of growth of the economy is less than the interest rate to service the debt.

The economic challenges on the horizon are challenging and unless we face them head on instead of putting our head in the sand the future will be very grim indeed, socially, politically and economically.

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Comments

28 responses to “Could Natural Gas Save Lebanon? Nah.”

  1. MeYosemite Avatar
    MeYosemite

    Gas will divide them further… I can simply imagine each warlord running his own pipe to a gas well running to his house for heating…

    1. Leborigine Avatar
      Leborigine

      Ditto!

    2. 5thDrawer Avatar
      5thDrawer

      Considering their levels of ‘expertise’ Yosemite, the odds on them blowing themselves up would be quite good. Maybe we should encourage them on that. 😉
      Of course, the aim should be to use the gas to power cheaper electricity for ALL the citizens, and a sale of the extra to both ‘help’ people with a few ‘benefits’, and to pay down the national debt, while also building a solar-energy sector for a future of free electricity from the Sun God.

      But as Leborigine notes, the odds are against that.
      And any brains which exist are encouraged to run …

      1. ghassan Karam Avatar
        ghassan Karam

        5thDrawer,
        It is also instructive to keep in mind that such natural riches have been accompanied in most cases by what is being called “natural resource curse”

        1. 5thDrawer Avatar
          5thDrawer

          🙂 Yes Ghassan … understand that one. 🙂
          There’s an old saying … ‘Them that has, gets.’ A little reality-shot at the rich. But when it’s a country that has, you need to revise it to ‘gets stomped on’ I think. 😉
          Unless, of course, they can ‘get it together’ to protect it while doling it out, for their own benefit … avoiding the stompers.
          Here, ‘getting it together’ seems to be the basic problem.

    3. ghassan Karam Avatar
      ghassan Karam

      That is not very far fetched:-)

  2. MeYosemite Avatar
    MeYosemite

    Gas will divide them further… I can simply imagine each warlord running his own pipe to a gas well running to his house for heating…

    1. Leborigine Avatar
      Leborigine

      Ditto!

    2. 5thDrawer Avatar
      5thDrawer

      Considering their levels of ‘expertise’ Yosemite, the odds on them blowing themselves up would be quite good. Maybe we should encourage them on that. 😉
      Of course, the aim should be to use the gas to power cheaper electricity for ALL the citizens, and a sale of the extra to both ‘help’ people with a few ‘benefits’, and to pay down the national debt, while also building a solar-energy sector for a future of free electricity from the Sun God.

      But as Leborigine notes, the odds are against that.
      And any brains which exist are encouraged to run …

      1. 5thDrawer,
        It is also instructive to keep in mind that such natural riches have been accompanied in most cases by what is being called “natural resource curse”

        1. 5thDrawer Avatar
          5thDrawer

          🙂 Yes Ghassan … understand that one. 🙂
          There’s an old saying … ‘Them that has, gets.’ A little reality-shot at the rich. But when it’s a country that has, you need to revise it to ‘gets stomped on’ I think. 😉
          Unless, of course, they can ‘get it together’ to protect it while doling it out.

          1. Salaphylis Avatar
            Salaphylis

            waw shou hal shi3lit zaka; you got that one balla! what a diatribe in this blog; you are all admiring the ape in the middle,,,you applaud each other

          2. 5thDrawer Avatar
            5thDrawer

            Well, we’re not listening to a guy who can’t spell Syphilis right … ;-))

          3. Salaphylis Avatar
            Salaphylis

            do you prefer the one who can spell syphilis right or the one who can forespell your syphilis right…if sheikh sa3d found someone to forespell his syphilis right (even mispelt as salaphylis), he would have been treated with penicillin and wouldnt have been quarantined in paris

          4. Salaphylis Avatar
            Salaphylis

            yes ghassan the einsteins of this blog understood your jewels; walak ro7lo; allo min 3antarak, allo 3antart wa ma7ada radneh…yall ghassan sa7se7lo

        2. Salaphylis Avatar
          Salaphylis

          walak ya khal, you look like an ambulatory encyclopedia; 3a mahlak 3al shabab ya 3amm

    3. That is not very far fetched:-)

  3. Leborigine Avatar
    Leborigine

    I think I have mentioned this before Ghassan, but you need a strong and functioning government to sell gas or oil. A lot of companies in Australia are owned by an israeli affiliate, so selling 30% of the Leviathan field is not such a hard task for them. The israeli’s and their business partners work on a system and abide by the system as stated. Whereas for Lebanon, you are entering a different dimension. Tribal, uncivilsed and lawless system that cannot even sell olive oil to a neighbouring country. Carlos Helou even went to Lebanon to invest and give us an opportunity to be something and our useless leaders from the likes of Berri and Jumblatt scared him away. I am pretty sure you would have read about.
    It is rather unfortunate, but when our leaders and their people follow and support regional powers except their own, Lebanon will always be a lost cause!

    1. ghassan Karam Avatar
      ghassan Karam

      The point about the sale of 30% of the Israeli Leviathan field gives one a good idea about the expected market value of these deposits. The Israeli transaction is valuing the Leviathan at about $4.2 billion. which makes sense.

  4. Leborigine Avatar
    Leborigine

    I think I have mentioned this before Ghassan, but you need a strong and functioning government to sell gas or oil. A lot of companies in Australia are owned by an israeli affiliate, so selling 30% of the Leviathan field is not such a hard task for them. The israeli’s and their business partners work on a system and abide by the system as stated. Whereas for Lebanon, you are entering a different dimension. Tribal, uncivilsed and lawless system that cannot even sell olive oil to a neighbouring country. Carlos Helou even went to Lebanon to invest and give us an opportunity to be something and our useless leaders from the likes of Berri and Jumblatt scared him away. I am pretty sure you would have read about.
    It is rather unfortunate, but when our leaders and their people follow and support regional powers except their own, Lebanon will always be a lost cause!

    1. The point about the sale of 30% of the Israeli Leviathan field gives one a good idea about the expected market value of these deposits. The Israeli transaction is valuing the Leviathan at about $4.2 billion. which makes sense.

      1. Salaphylis Avatar
        Salaphylis

        btifham bil khodra wa bil bandora wa bil kahraba wa bi wa bi wa bi…. bi koul ishshi ma 3ada bi libnan…. shekiltak 3amil yahoodi

    2. Salaphylis Avatar
      Salaphylis

      we the salafis and gea3gea3is support sa3oudi libnan

  5. Constantin7 Avatar
    Constantin7

    I said it in the past and I will repeat it here. Finding oil and gaz in the Lebanese waters is good, but it is not enough. Having natural resources does not mean we will have less thieves than we have right now, in fact probably the thieves will become more and richer. Having natural resources does not mean that the people are going to become more educated and civilized. A country’s richness is measured by the level of education of its population. The more educated they are the richer they are, notwithstanding if they have mineral resources or not. Many of the wealthiest countires in the world have almost no resources and yet they are rich and have very high standards of living, examples: Switzerland, Netherland, Belgium, Luxembourg, Japan, Taiwan, Singapoure, Austria, Danemark, Sweden, Belize, Barbados, Monaco, New Zealand, etc…Education (ie the brain) is the key to wealth and prosperity, not natural resources. Countries that have both: brains and natural resources like Canada, Australia, the US, the UK, Norway are the wealthiest countries in the world. Saudi Arabia, on the other hand, is not a wealthy country, where 80% of the population lives in ignorance and in poverty, 15% are middle class and 5% rich or filthy rich. Tomorrow if scientists invent an alternative to oil, the saudis will die of hunger.
    So the news of oil and gaz in our waters does not exite me too much knowing who is going to manage these and with what tribal mentality, I am very wary about the whole process….

    1. 5thDrawer Avatar
      5thDrawer

      They have also a very good chance of ruining the tourist beaches while drilling.

  6. Constantin7 Avatar
    Constantin7

    I said it in the past and I will repeat it here. Finding oil and gaz in the Lebanese waters is good, but it is not enough. Having natural resources does not mean we will have less thieves than we have right now, in fact probably the thieves will become more and richer. Having natural resources does not mean that the people are going to become more educated and civilized. A country’s richness is measured by the level of education of its population. The more educated they are the richer they are, notwithstanding if they have mineral resources or not. Many of the wealthiest countires in the world have almost no resources and yet they are rich and have very high standards of living, examples: Switzerland, Netherland, Belgium, Luxembourg, Japan, Taiwan, Singapoure, Austria, Danemark, Sweden, Belize, Barbados, Monaco, New Zealand, etc…Education (ie the brain) is the key to wealth and prosperity, not natural resources. Countries that have both: brains and natural resources like Canada, Australia, the US, the UK, Norway are the wealthiest countries in the world. Saudi Arabia, on the other hand, is not a wealthy country, where 80% of the population lives in ignorance and in poverty, 15% are middle class and 5% rich or filthy rich. Tomorrow if scientists invent an alternative to oil, the saudis will die of hunger.
    So the news of oil and gaz in our waters does not exite me too much knowing who is going to manage these and with what tribal mentality, I am very wary about the whole process….

    1. 5thDrawer Avatar
      5thDrawer

      They have also a very good chance of ruining the tourist beaches while drilling.

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