Lebanon struggles to fund energy sector growth amid financial challenges

Energy experts also call for continued global investment in oil and gas along with renewables

Solar panels in Beirut, Lebanon. Photo: Lebanese Center for Energy Conservation

Lebanon wants to raise money, including debt, to develop its energy sector, but funds are hard to come by as financial institutions choose to remain on the sidelines, and the domestic financial system suffers from a lack of reforms, the country’s energy minister said.

It is “almost impossible” to access significant investment from bodies such as the World Bank, the International Finance Corporation and the European Bank for Reconstruction and Development, which are typically involved in big infrastructure projects, Walid Fayad, Lebanon’s caretaker Minister of Energy and Water said on Tuesday.

“It’s not only a lack of financing in the oil and gas space, but also a lack of funding in the renewable energy space with major international institutions not yet unlocking the financial instruments,” he told The National at the World Energy Congress in Rotterdam.

Lebanon, which generates about 25 per cent of its electricity from renewable energy, requires an additional few thousand megawatts of solar capacity to complete its energy transition, which could cost a “couple of billion dollars”, he said.

“I want to say the total bill for the next 10 years would be something less than $1 billion.”

The country is grappling with what the World Bank has called one of the worst global financial crises since the 19th century.

It has yet to enforce critical structural and financial reforms required to obtain $3 billion of assistance from the International Monetary Fund, as well as billions in aid from other international donors, due to a lack of consensus among the political ruling class.

The country has been without a president since the end of October 2022, when the six-year term of Michel Aoun ended. It is being run by a caretaker cabinet led by Prime Minister Najib Mikati, with limited powers.

“You almost feel like you need the geopolitical stability in addition to other considerations of a political nature to unlock this financing,” Mr Fayad said.

“At the same time, inside Lebanon, the financial system has not undergone the needed reforms in order to allow the rebirth of the banking system and the access to the funding from the local banks,” he said.

In the last couple of years, Lebanon's government has pinned its hopes on possible oil and gas reserves as a source of much-needed revenue for the debt-ridden country.

Exploratory drilling for hydrocarbons in the country’s offshore Block 9 began last year after a US-mediated agreement that demarcated Lebanon’s maritime border with Israel.

French oil company TotalEnergies is leading the consortium that is doing the drilling, along with Italian company Eni and state-owned QatarEnergy.

“In Lebanon, over a 20-year period, we have only dug two exploration wells and so statistically speaking, we just need to do more,” the minister said.

“We need to see better engagement from our international partners … in the exploration activities to produce commercial results. With two exploration wells, it is not sufficient to be able to get those results."

Energy security in focus

At the World Energy Congress, executives and experts spoke about the need to lower carbon emissions without compromising the supply of oil and gas.

“People are really diverting from the real issue. We need to find solutions. We don't need to eliminate a source of energy that is building economies [and] that is feeding all the globe,” Sharif Al Olama, undersecretary for Energy and Petroleum Affairs at the UAE Ministry of Energy and Infrastructure told a panel.

“I am a firm believer that gas is not going to go anywhere in the next few decades. Gas is going to be a transitional fuel and it will be needed."

His comments come as emerging economies in Asia aim to increase the share of natural gas to reduce dependency on highly polluting coal amid an expected surge in power demand.

There is also a need for higher investment in refining as the US shuts down ageing plants, Amrita Sen, the founder and director of research at Energy Aspects, said.

Refiners are responsible for converting crude oil into petroleum and diesel.

National oil companies from the Middle East are the only ones in the industry investing in the downstream sector, she said.

“We do foresee a shortage in the downstream capacity in the medium term by 2030 because other than the Middle East, nobody else is investing,” she added.

Ms Sen noted that Kuwait’s Al Zour refinery, the Middle East's biggest, was the last major plant to be built in the region.

The UAE has made “continued investments” not just in refining but also in making the process greener, while Saudi Aramco has consistently invested in refining in the East, including in China and India.

Financing from Middle East NOCs is “critical” as banks are generally unwilling to sponsor or finance projects related to downstream activities, Ms Sen said.

Costly war

Sara Akbar, a Kuwaiti oil industry veteran and the chief executive of Oilserv Kuwait, on Tuesday criticised the West’s support of Israel and said the “billions” being given to the country in military aid by the US could be used for investing in renewable energy.

“The West is supporting Israel today. You are creating your own enemy, believe me, because you have given them carte blanche and to hit anyone they like at any time with funding [in the] billions from the US,” Ms Akbar said.

“This money that goes into buying weapons could go into cleaning the world [or] renewables … instead of this huge destruction,” she said

On Saturday, the US House of Representatives approved $86 billion in aid for Ukraine and Israel.

The bill includes $4 billion for Israel’s missile defences in the wake of last weekend’s drone and missile attacks by Iran. It also provides $9 billion in global humanitarian aid, including for use in Gaza.