25-01-06 Lebanon was among the first in the Middle East to build oil refineries in the 1950's, but now its facilities in Zahrani and Tripoli are inoperative making it one of the only countries in the region with no refining capacity, and consequently entirely dependent on imported fuel sources. With prices of oil soaring the cost of meeting annual energy consumption requirements is not sustainable in the long-term.
Sarkis Helaiss, the director general of oil facilities in Lebanon, and Hussein Ishaq, the director of refining affairs at Qatar Petroleum signed a letter of intent for a Memorandum of Understanding about developing Lebanon's refining potential.

The macro-economic consequences of the global energy market -- where an unstable oil supply is coupled with rising demand -- has been a double edged sword for Lebanon. At $ 68 per barrel the cost of crude oil is crippling the government, which must spend over $ 1 bn a year to meet its fuel consumption requirements, but paradoxically has been the necessary catalyst for the private sector to invest in Lebanon's refining facilities.
Zakaria Rammal, an advisor to Lebanese Energy Minister Mohammad Fneish, told this is the first feasibility study dealing directly with Lebanon's oil refining potential.

Qatar is financing the project -- which will start in 15 days and take six months to complete -- and has appointed an international consulting firm to conduct it. The goal is to determine whether the dormant and out-of-date Tripoli refinery should be revamped or destroyed all together, where supplies of crude oil will come from, and the type of fuel that Lebanon should refine.
If the study yields positive results, Qatar will consider investing in a large refining facility that will aim to process 150,000-200,000 barrels of petrol derivatives per day. The Qatari Energy Minister, Sheikh Abdullah bin Hamad al-Attiyah told that the construction of a refinery could cost up to $ 2 bn, but would potentially reduce Lebanon's energy spending by 30 to 40 % by reducing dependence on imported fuel.

The Qatari backed project is not the first feasibility study into Lebanon's energy sector. The EU, the European Investment Bank, and the World Bank have all commissioned studies on Lebanon's energy efficiency.
According to the 2004 World Bank hydrocarbon strategy study, the lack of any viable energy sources and a reliance on fuel imports, coupled with the rising demand for energy is a significant cause of the country's fiscal crisis. The World Bank estimated the Lebanese market currently consumes 98,000-99,000 barrels of oil per day, meaning it imports 5,000,000 tons of petroleum products annually.

The report projected future consumption rates reaching 128,000 bpd by 2010-2015, meaning petroleum imports to Lebanon are estimated to grow by 5.2 mm tons within the decade.
The government cannot sustain its current expenditure on energy. The allocations included in Lebanon's 2004-2005 fiscal budget were based on a stable oil market -- where the price of crude was $ 24-25 per barrel.

The government covers the losses of Electricite du Liban -- the national power company which takes the lion's share of the energy imports -- with an $ 800 mm subsidy.
"All Lebanon needed to develop its oil refineries was private sector investment, but the government did not proved that Lebanon was a stable investment environment. The new legislation passed by Parliament in 2004 introduced the right reforms, and all that was needed was a comprehensive feasibility study. Now we have that thanks to Qatar," independent energy expert Rudi Baroudi told.

The 2003 Refinery and Natural Gas Law 549 set the parameters for energy sector reform, and according to Baroudi will lead to increased efficiency and transparency in oil market. The law establishes a framework for refurbishing and expanding the Tripoli refinery and a new structure in its pricing regime.
It also outlines a plan to decrease the state's role in the energy sector, by changing the government's focus from economic regulation, to enforcing environmental and safety standards and protecting people from market fluctuations in oil prices.

Though the country lacks natural oil and gas resources, with its central location, relatively transparent economy, and two non-operational refining facilities, Lebanon has always been well positioned to increase its energy efficiency.
Only now that the security of the global energy supply is in doubt -- due to political tensions in oil-rich regions and a shortage of refining capacity world-wide -- has the development of Lebanon's refining potential been recognized as a strategy at the regional level.

World-wide existing refineries process enough crude oil to meet present levels of global consumption, but world-wide demand will soon outpace refining capacity, due to the rapid industrialization occurring in China and India and the lack of refining facilities in America -- none have been built in 28 years.
"The choke point on refineries, especially in the US, is threatening the security of global supply so the petrol dollars streaming into Gulf States are being reinvested in refining facilities. America doesn't want to build new refineries because it takes so long and they don't make very much money, so producers are building in places where you won't get protests and infrastructure won't be damaged," Soloman Smith Barney oil consultant Peter Gignoux said.

Though relaunching the Tripoli refinery (there are no plans to rebuild Zahrani) is immediately geared toward filling local energy consumption needs, the remaining capacity will be marketed to meet regional requirements. In 2004 total regional refining capacity stood at 3.8 mm bpd. Currently there are seven refineries in Egypt, five in both Libya and Turkey, two in Syria and eight in Saudi Arabia. In financing the deal Qatar gets a new customer to process its crude oil.
"The business of oil is very straightforward. If you are an oil producer, you wake up in morning and you go sell your product. It's very attractive to have aconsistent market to buy your crude every day," Gignoux said.