Lebanon is nearing an agreement with Israel over a naval dispute over offshore gas fields, but the financially strapped country still faces an uphill battle to unlock potential hydrocarbon riches, analysts say.

“An agreement would be a step forward, but it doesn’t mean that Lebanon has become a gas or oil producing country,” said Marc Ayoub, associate fellow at the American University of Beirut’s Issam Fares Institute.

“We are talking about a period of five to six years … until the first gas” if economically viable deposits are actually found, the energy expert told AFP, describing the time frame as “optimistic”.

As global gas demand surges due to an energy crisis sparked by Russia’s invasion of Ukraine, Lebanon is hoping an offshore discovery would ease its current unprecedented financial downturn.

But more than a decade since it declared its maritime borders and an exclusive economic zone, it still has no proven natural gas reserves.

A well drilled in 2020 by a consortium of energy giants TotalEnergies, Eni and Novatek showed only traces but no economically viable gas deposits.

Further test drilling in a block near the border has been hampered by the maritime border dispute between Lebanon and Israel, who are technically still at war.

After years of US-brokered negotiations, the rival states appear to be moving closer to an agreement after a draft proposal from Washington was welcomed by both sides over the weekend.

A deal would allow “offshore exploration activities to continue, but that doesn’t mean Lebanon has gotten rich…or that its crisis has been resolved,” Ayoub said.

A 2012 seismic study of a limited offshore area by British firm Spectrum estimated recoverable gas reserves in Lebanon at 25.4 trillion cubic feet (tcf).

The authorities in Lebanon have announced higher estimates.

Block 9 near the border with Israel contains what is known as the Qana field or Sidon reservoir and will be a key zone for offshore exploration by TotalEnergies and Eni, who were awarded a contract in 2018.

After the Qana field was partially claimed by Israel, Lebanese officials say it is set to fall entirely to Lebanon under the maritime border agreement.

“By this time next year, we should know whether or not there’s a commercial discovery at Qana,” Ayoub said.

“Once we have a discovery, it will be … not less than three to five years after exploration” before production could begin.

That timeframe assumes there are no delays by the Lebanese authorities, who are widely blamed for the corruption and mismanagement behind the country’s financial crash, according to Ayoub.

It took months for the Lebanese Petroleum Administration (LPA) regulator to name its board after its creation in 2012, amid political disputes over nominations.

Several bidding rounds for offshore gas and oil licenses have been plagued by delays since they began in 2013.

Lebanon is already well behind Israel, which has been investing in the offshore Karish field for years and expects its first gas within weeks.

Cyprus and Egypt have also started to discover large reservoirs.

Roudi Baroudi, an energy consultant, said gas or oil production could start within three years if economically viable deposits were found.

But to attract energy companies and capitalize on potential discoveries, Lebanon urgently needs to undergo reforms, he told AFP.

“Lebanon is not a good investment if the government does not implement reforms,” ??said the energy expert.

Reforms would “provide the basic safeguards international companies need to operate with less risk”.

State institutions in Lebanon have collapsed under the weight of the crisis, and official strikes are contributing to the paralysis.

More than three years into the financial recession, despite increasing pressure from foreign donors and the International Monetary Fund, a recovery plan has yet to be launched.

And the political deadlock has led to a months-long delay in forming a new government amid fears a presidential vacuum could emerge after Michel Aoun’s mandate expires at the end of October.

With a bankrupt state unable to provide more than an hour or two of electricity from the grid per day, energy companies could choose to work on their Lebanon projects from Cyprus, according to Baroudi.

“Without the rule of law, Lebanon is a jungle,” he said.

“It’s absolute chaos, whether judicial, financial or regulatory.”