Russia Is Taking Over
Syria’s Oil And Gas, by Viktor Katona, 2/14/18.
If
finally happened….In accordance with an energy cooperation framework agreement
signed in late January, Russia will have exclusive rights to produce oil and
gas in Syria.
The
agreement goes significantly beyond that, stipulating the modalities of the
rehabilitation of damaged rigs and infrastructure, energy advisory support, and
training a new generation of Syrian oilmen. Still, the main international
aspect and the key piece of this move is the final and unconditional
consolidation of Russian interests in the Middle East.
Before
the onset of the blood-drenched Civil War, Syrian oil production wavered around
380,000 barrels per day. It has declined for some time then, since its all-time
peak production rate of 677,000 barrels per day in 2002. Although the Islamic
State was allegedly driven underground, the current output still stands at a
devastating 14–15,000 barrels per day.
As for gas, the
production decline proved to be lower (it fell from 8 BCm/year to 3.5 BCm/year)
due to its greater significance within the domestic economy. 90 percent of the
produced gas in Syria was used for electricity production (as opposed to oil,
which was either refined domestically or exported), and in view of this, the
government took extra care to retake gas fields first as the prospects of
reconquest became viable enough.
It’s an understatement
to say that whoever takes over Syria’s energy sector will receive a desolate
ruin. The country’s refineries need thorough reconstruction after their
throughput capacity has halved from the pre-war level of 250,000 barrels per
day. This task will most likely be carried out by Iranian companies, in
accordance with agreements signed in September last year, which also involved the
reconstruction of Syria’s damaged power grid. However, it remains unclear
whether this project will go through, as Tehran counted upon an
Iran-Venezuela-Syria consortium, which is all but feasible now against the background
of Venezuela disintegrating, a new solution ought to be found. In any case,
Tehran already got what it wanted in Syria as Iran’s Revolutionary Guard
already secured the telecommunications sector.
Russia isn’t the only
country that could have helped Syria to rebuild its oil and gas sector — as
stated above, Iran could also lend a hand. However, Iran lacks the funds to
invest heavily in Syria’s infrastructure — it needs foreign assistance to
kickstart new projects at home aggravated by aging infrastructure and rapidly
increasing demand. European companies are unlikely to get interested in Syria
unless the EU embargo is lifted (in effect until June 1, 2018). Since the end of largescale military
operations in Syria did not bring about a change of regime and Bashar al-Assad
remains president of Syria, it would be surprising for Brussels not to prolong
the sanctions regime (the U.S. will do it without a moment’s hesitation).
Sanctions-wise, Moscow
is unafraid of any consequences for it is already under European and U.S.
sanctions. With a long-range goal in mind, it could even assent to the
significant cost of rebuilding Syria’s oil and gas sector — IMF put the expenses at $27 billion in 2015 but the
current estimate lies most likely between $35–40 billion. This includes the
totality of rigs, pipelines, pumping stations etc. to be repaired and put back
into operation. In some areas, for instance, in the predominantly
Kurdish-populated northern provinces with its heavy oil deposits, it’s unlikely
to seize the opportunity. Moreover, it remains unclear what will happen to the
fields (including Syria’s largest oil field, Al Omar) that were retaken by Western-backed militias, not the
Syrian army.
Unfortunately for Royal
Dutch Shell (NYSE:RDS-A) which was forced to let go of the 100 kbpd Al Omar field
because of the stringent sanctions regime, Damascus seems intent on
consolidating the energy sector under the guidance of the national oil company,
SPC. By means of political hand-wringing and the extension of Kurdish political
rights within a united Syria, this goal can be achieved; however, the issue of
selling the oil is just as acute as is its production.
Most of Syrian
export-bound oil was destined to Europe, partly because of its geographic
vicinity, and partly because European companies Shell and Total (NYSE:TOT) were the largest shareholders in the
sector. This is no longer possible as long as the EU ban on Syrian oil exports
stays in place. Thus, the new owner would have to find new market outlets,
either by relying on adjacent countries like Turkey or Lebanon, or by finding
buyers in Asia.
Interestingly,
there has been little to no discussion so far on which company will have to
take up the uneasy job of bringing Syria’s energy sector back to life.
Throughout the war years, only the minuscule Soyuzneftegaz ventured into Syria
(eventually relinquishing its prospects in 2015). Tatneft, a state-owned
enterprise that develops Tatarstan’s oil and gas fields, is an obvious
candidate since Syria (along with Libya, to their detriment) was their first
attempt to internationalize their activities. Just as it girded itself for the
commissioning of the Qishma oil field, full-scale war broke out and the company
was forced to abandon it. Tatneft, Russia’s fifth-largest producer, is
interested in returning to Syria once conditions allow for it. Beyond that,
it’s still unclear if state majors (Rosneft, Gazprom Neft) would want to join
in.
Taking control of gas
fields seems a better (and more profitable) bet for Russia. If it manages to
secure a fixed price, stable demand is guaranteed domestically, as gas will
remain the dominant electricity generation input. Moreover, the continental
shelf of the Eastern Mediterranean has yielded the likes of the Zohr, Leviathan
and Aphrodite. Lebanon, whose sweetest spots are in-between Zohr and Leviathan,
is also inching closer to tap into its assumed gas bounties.
Syria’s
offshore potential is still shrouded in mystery, despite some seismic survey in
late 2000s, most of the times one just hears allusions that it is as prolific
as that of Israel, Egypt or Cyprus. An early USGS estimate put Syria’s
potential offshore gas reserves at 24 TCf (700 BCm), more than double of its
onshore gas, while its oil reserves at a “mere” 50 million tons, a sixth of its
onshore oil reserves.
Syria’s
proven reserves of 2.5 bln barrels (341 million tons) of oil and 10.1 TCf (285
BCm) of gas might seem meager compared to those of neighboring Iraq or allied
Iran. Taking into consideration that one-third of its reserves are very heavy,
viscous crudes, Damascus will have to sweeten the deal to bring in big Russian
names — companies that can genuinely make an impact and not just take a chance.
But geopolitically, it might be a wise move.
Russia
has been keen on increasing its foothold in Iraqi Kurdistan (Rosneft, Gazprom Neft),
tapping into Lebanon’s offshore gas (NOVATEK), and having a bigger say in
Eastern Mediterranean affairs in general. For that, taking over Syria’s oil and
gas sector might be a very powerful, non-military, tool.
By
Viktor Katona for Oilprice.com
Norb Leahy, Dunwoody
GA Tea Party Leader
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