Syria's Oil Sector on Verge of Collapse
Author: alhayat Posted September 15, 2013
The spark of civil war ignited in Syria in March 2011, and the petroleum sector — including oil and gas — has incurred its share of the devastation that has hit the country since the beginning of the uprising. In October 2012, the Syrian minister of petroleum said that, to date, direct and indirect losses in the oil sector were estimated at $2.9 billion. Most of these losses came as a result of export losses following a Western ban on [Syrian] oil, the overwhelming majority of which went to the European market. There are, of course, also losses resulting from the destruction of infrastructure such as railways, oil pipelines and refineries. According to the latest report issued by the Syrian government, the value of these losses until the end of October 2012 was estimated at $220 million, including $146 million as a result of the devastation that affected the electricity sector, and more than $70 million in losses in oil infrastructure.
Of course these are only preliminary figures, and only one part in a long series of losses in this vital sector. The experiences of Middle Eastern countries that were recently hit by wars and embargoes — in particular Iraq, Iran and Libya — indicate that the chaos will affect the petroleum sector for years after the wars and embargoes end; militias will take over oil facilities and production will suffer huge setbacks. This is happening in Libya and — gradually — in Iran. In the latter, the Revolutionary Guards Corps has taken over the petroleum sector, manipulating contracts without any notable accountability or transparency. Iran has not been able to restore its previous output levels, while corruption and blatant theft — in addition to the mass migration of engineers and national staff — has plagued one of the most important sectors in Iraq.
There are also undeclared losses with geopolitical dimensions. In recent years, some Syrian oil ministers have tried to turn their country into a transit hub for oil bound for international markets, given the country's strategic location. Yet, these attempts were undermined by the presidency's confrontational policies, which negatively impacted the country's credibility. Nevertheless, the oil ministers' attempts continued, even though the experiences of several other oil exporting countries were not encouraging at all. Damascus had linked its transit policy to its regional policy, meaning that the Iraqi pipeline carrying oil to European markets via the Mediterranean had to be closed in the early 1980s, following the outbreak of the Iran-Iraq war.
In the past two years, Syria has proposed transit projects, but it is unlikely that they will be implemented due to their obvious political nature. A tripartite agreement was signed between Iran, Iraq and Syria in May 2011, which on the surface aims to transport Iranian gas through Iraq to Syria. Yet, international oil experts believe that the real aim of the pipeline — if its ever implemented — is to serve as a first step toward exporting Iranian gas to Europe. However, since Europe is taking part in the oil embargo on Iran, it is not expected that the pipeline will ever be built, and in fact, no part of it has yet to be constructed.
There is also an agreement to construct two pipelines to transport crude oil from Iraq to Syria as well as a third line for natural gas. These pipelines would be both economically and strategically important for Iraq, especially if Iraq decides to export gas from the Okaz field in the west of the country, to avoid the repeated attacks that have targeted its northern pipelines to Turkey. It would also allow these countries to export gas to Europe via the Arab gas pipeline that transports Egyptian gas to Europe via Syria and Turkey. Given that there is a shortage in Egyptian gas, Iraqi gas can compensate for this shortage.
Proven Syrian crude oil reserves are estimated to be about 2.4 billion barrels. Before the outbreak of war in 2011, total output was about 330,000 barrels per day, while domestic consumption was about 258,000 barrels per day. Data confirms that reserves declined in recent years from the level of 2.4869 billion barrels, since no new reserves could be discovered.
This decline in reserves was accompanied by a significant decline in production, with output peaking at 595,000 barrels per day in 1995. Since then, production has been in steady decline, reaching 330,000 barrels per day in early 2011. Syria was able to reach this level by increasingly producing heavy oil (Suweida crude), instead of its depleting light oil. Data indicates that production decreased during the war to about only 153,000 barrels per day in October 2012. The major problem faced by the country prior to the war was a decrease in oil production alongside an increase in consumption. This meant that the government had to import fuel to supply the local market, or convert as many power plants as possible into gas-consuming plants — which is what happened.
In 2007, and again in early 2011, Syria tried to start exploration in offshore areas, in line with neighboring eastern Mediterranean countries that had discovered gas. Yet, until now, no agreement has been concluded with international oil companies. Negotiations were held with two foreign companies in 2007, but failed to produce results. Furthermore, the licensing round launch by Syria in March 2011 failed to attract companies, due to the outbreak of the conflict and the Western oil boycott. Syrian gas reserves are estimated at 6.99 billion cubic meters, the majority of which is associated gas. It is worth noting that there have been no discoveries to confirm the rumors that circulated in Arab circles during the Syrian war about massive gas discoveries in the country.
The nature of a potential military strike on Syria is at this point unknown. Will it be limited to targeting military facilities and bases, as the bills before congress suggest? Or will it also target infrastructure, under the pretext that it supports Syria's military efforts? This is what happened in Iraq, when refineries and pump stations were bombed. Or will the scope of the strikes be expanded to include nonmilitary targets, something that is possible in times of war, despite denials in US statements?
Syria will face major challenges in rebuilding its oil industry. It will rebuild with time, but the costs will be great. Although Syria is not a major oil producing country, it can — at least — build on what has been discovered thus far, and what will be provided by future discoveries. There is another petroleum opportunity for Syria — in addition to exploration and development — and this involves benefiting from oil and gas transit operations, as neighboring Turkey had done. Yet, the primary condition for transit operations is not to breach signed agreements, and ensuring stability and oil supplies.
Read More: http://www.al-monitor.com/pulse/business/2013/09/syria-oil-sector-devastated-war.html