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NONAV - Syria - Oil Gas & Utilities Report
Source: BI-ME , Author: BI-ME staff
Posted: Tue December 21, 2004 12:00 am

SYRIA. Oil constitutes 60% of Syria's export revenue and the rise in market prices in 2003 onwards is having a positive effect on government revenues and GDP growth. But Syria's oil industry faces many challenges in the years to come. Oil output and production continues to decline due to technological problems and depletion of oil reserves.

Since peaking at 600,000 barrels per day (bpd) in 1996, Syria's oil output has fallen steadily to the current 530,000 bpd, as older fields - especially the large Jebisseh field discovered in 1968 - have reached maturity.

Syrian oil production is expected to continue its decline over the next several years, while consumption rises, leading to a reduction in Syrian net oil exports it is feared that Syria could become a net oil importer within a decade.

Political developments during 2004 and 2005 are also causing some worries for investors. US Secretary of State Condoleezza Rice has warned Syria it faces new sanctions because of its suspected interference in Iraq and ties to terrorism. Iran and Syria, both locked in rows with the US, said in February 2005 they will form a common front to face challenges and threats.

The US recalled its ambassador to Syria for urgent consultations to show its deep displeasure with Damascus after the February 2005 killing of former Lebanese Prime Minister Rafik al-Hariri. US officials said they were considering imposing new sanctions on Syria because of its refusal to withdraw its 14,000 troops from Lebanon and the US belief that Syria lets Palestinian militants and Iraqi insurgents operate on its soil.

While acknowledging they did not know who was to blame for Hariri's car-bomb assassination, US officials have argued Syria's military presence and its political power-broking role were generally responsible for Lebanon's instability. Russia meanwhile has slammed the US for accusing Syria of having ties to terrorism, criticising it for harming security in the Middle East with such statements. Russia is embroiled in a diplomatic crisis with Israel over intentions to sell anti-aircraft missiles to Syria.

Background to the oil and gas sector

It was in 1975 that Syria began to allow foreign oil companies to prospect for oil within its borders,although subjecting them to tight exploration and production-sharing agreements that vary slightly from company to company.

The first foreign operator to begin production was Shell (via its subsidiary Pecten) and in partnership with Deminex,a German company. In 1984 Pecten discovered commercial volumes of light crude in the Euphrates basin near Deir Ez Zor and in 1985,Shell, together with SPC and Deminex (now known as Veba), formed the Al Furat Petroleum Company (AFPC) the country ’s largest oil producer. These fields lie in a geographical feature called the Euphrates 'Graben' (depression between two fault lines) North of the Euphrates River. It is here that the bulk of production is realised.

Production from fields operated by Al Furat peaked at around 400,000 bpd in 1992 but have subsequently declined by around a quarter. It is reported that AFPC is confident of maintaining production around this level until at least 2006. AFPC also produces around 4.2 million cubic metres per day of associated gas and around 3,000 tonnes of LPG per year from its fields. In all AFPC has drilled over 350 wells in Syria and discovered 38 commercial fields. These fields have produced around 1 billion barrels of oil, which it estimates to be about half of their reserves. But what proportion of the remaining reserves will prove to be commercially recoverable still remains to be seen.

The next big international oil company to discover oil in Syria was Elf, which in 1988 located commercial fields in the Euphrates basin. Production began in 1990, with Elf (now TotalFinaElf or TFE) forming the Deir Ez Zor Petroleum Company (DEZPC) joint venture with SPC. Production peaked at around 60,000 bpd and, having entered the decline phase, is now around 50,000 bpd.

This decline in domestic oil production means that Syria is placing more focus on its gas potential (see below). Syria has intensified both oil and natural gas exploration and production efforts, plus a switch from oil-fired to natural-gas fired electric power plants. Syria also has opened up new blocks for oil and natural gas exploration, with the Oil and Mineral Resources Ministry receiving bids from several international companies starting in December 2001 on five exploration areas.

Awards for these blocks were made in January 2003, with Shell receiving exploration rights in the Damascus-Palmyra area and India's ONGC Videsh receiving another onshore block. Independents Ocean Energy and Stratic Energy also received awards. Since the first round of bids closed, bids for a second round of 11 blocks closed in October 2002. Bids for a third round of 11 blocks were solicited in December 2002. The current third bid round includes five blocks from the second round for which bids were not received, as well as six new blocks.

AFPC's main oil field is al-Thayyem and as previously stated production there has been declining since 1991. Another important field - Omar/Omar North - began production in February 1989 at 55,000 bpd. Shortly thereafter, operator Shell was pressed by the cash-strapped Syrian government to step up production (against Shell's advice) to 100,000 bpd. The result was serious reservoir damage and in April 1989 output plummeted to 30,000 bpd.

Currently Omar produces about 15,000 bpd from natural pressure and 30,000 bpd from water injection. Other AFPC fields include al-Izba (light oil), Maleh (34o API gravity oil), Sijan, and Tanak. Production from all fields run by SPC peaked in the late 1970s at more than 165,000 bpd.

SPC's fields include:

  • Karatchuk - Syria's first discovery, located near the border with Iraq and Turkey
  • Suwaidiyah - a giant heavy oil field located south of Karatchuk in the Hassakeh region (and extending into Northwestern Iraq) which currently produces around 85,000 bpd
  • Jibsah - a major field producing both oil and gas
  • Rumailan - a small field near Suwaidiyah which produces heavy oil
  • Alian, Tishreen, and Gbebeh - three small, depleting fields producing heavy oil. China's CNPC signed a contract with SPC in March 2003 to undertake an enhanced oil recovery project for Gbebeh, which is to increase production from the current 4,500 bpd to 10,000 bpd.

Other Syrian oil fields include Maleh, Qahar, Sijan, Azraq, and Tanak. Jafra, discovered in late 1991 and located near Deir ez-Zour, is operated by TotalFinaElf and has current production of around 60,000 bpd. Besides conventional oil reserves, Syria also has major shale oil deposits in several locations, mainly the Yarmouk Valley stretching into Jordan.

Oil exploration activity in Syria has been slow in recent years due to unattractive contract terms by SPC, and poor exploration results. For these reasons only a few companies, out of more than a dozen operating in the country in 1991, remain in Syria at present. The recent bid rounds are an attempt to reverse this trend, but it is unclear how successful they will be.

All change in Syrian exploration rights

Although there is a general acceptance in the oil industry that the era of 'big' discoveries in Syria has passed, this does not mean that opportunities to prospect for or develop smaller finds will be passed up. Currently only around 40% of Syria ’s estimated 800 potential oil and gas structures have been drilled and the high oil price of the past few years has encouraged the launching of new exploration ventures.

New technologies have also accelerated new exploration tenders and other projects aimed at maximising extraction and recovery. Foremost among these projects has been a high-tech joint venture between TotalFinaElf (TFE) and Conoco to collect previously flared associated gas from oil fields operated by the Al Furat Petroleum Company (AFPC) at Deir Ez Zor. This is removing and delivering condensates and adding some of the gas to Syria ’s gas grid. At the same time it pumps the remainder into TFE ’s Tabiyeh field in order to increase the recovery of condensates. Syria has recently invited bids for enhanced recovery projects for several oil fields that it operates.

An international bid,opened in July 2001, for rights to prospect in previously unexplored areas has generated interest. Blocks offered include areas to the Northeast of Aleppo around Raqqa and Qamishly, South of Aleppo in the Homs depression, Southeast of Palmyra adjacent to the Iraqi border and South and East of Damascus in the Jabal El Arab depression.

Further significant interest has been generated by a project to develop and process known gas reserves in the 'Palmyrids' fields between Palmyra and Homs. Although parts of the area have been test drilled by SPC and significant gas reserves have been located, some of these are thought to be difficult to extract. This would explain why the Ministry of Petroleum chose to issue a tender for the project rather than allow SPC to develop at the field on its own.

Discussions with major oil companies, which have bid for the Palmyrids project, have now gone on for three years with no hint of when a decision might be expected. No public statement has been issued on the size of the reserves and indeed the area has not yet been fully explored. However, the deposits are thought to represent a valuable resource for Syria rather than being large enough to add to the regional export picture.

In 2002 Petrofac Resources International (PRI) sold its rights in three gas and oil exploration blocks it is bidding for in Syria to Stratic Energy Corporation of Canada. The transaction, which also included the purchase of a block PRI is bidding for in Algeria, cost Stratic US$1 million in stock to obtain the rights to the blocks and an additional US$3.8 million if the bids are successful.

The move is significant, not because of the size of PRI, which is a middle-sized oil player, but because Syria, where PRI has been present since 1986, is considered one of Petrofac's traditional markets. Samir Seifan, the General Manager of Petrofac Syria, told the Syria Report that "the move is part of a strategic alliance between Stratic and Petrofac" and that the company was not divesting but on the contrary continuing to look for investment opportunities in Syria.

The Sharjah-based company, which is part of the Texas-based Petrofac group of companies, has little experience in exploration itself as it is essentially a turnkey engineering and construction contractor.

Other recent changes in 2002 concern the sale of assets held by Veba Oil and Gas (VOG), one of the two foreign partners with Shell in the AFPC joint-venture, to Petro-Canada. This was a move that included all VOG's worldwide assets. Also in 2002 Crosco, an affiliate of Croatia's INA oil company, announced the purchase of the Syria assets of Rotary (a subsidiary of MOL oil and gas Company of Hungary) including three drilling rigs as well as related service and supply contracts.

With its entry into the Syrian market, Stratic became the third Canadian-based firm involved in the Syrian oil industry after Petro-Canada and Tanganyika, a small company which is prospecting in the Oud oil block near the Turkish border.

Refining and downstream operations

Syria's two refineries are located at Banias and Homs. Total current production from these refineries is 239,865 bpd (132,725 bpd and 107,140 bpd, respectively). Syria is planning to construct a third refinery, with an initial capacity of 60,000 bpd (possibly increasing to 120,000 bpd), at Deir ez-Zour to supply products to the Eastern part of the country. A feasibility study on this project reportedly was completed in January 1998, but it has not been implemented. In addition, Syria plans to upgrade its two current refineries, both of which are in urgent need of overhauling, to replace output of fuel oil with lighter products.

Syria markets all of its crude oil, including that produced by foreign companies, solely through the state marketing company Sytrol. Prices for Syrian Light, a blend of light and sweet crudes produced primarily from the Deir ez-Zour and Ash Sham fields, and heavy Suwaidiyah crude, produced from the Suwaidiyah and Jebisseh fields, are tied to the price of dated Brent and are adjusted monthly.

Since 1994, Sytrol has had a clause in its term contracts prohibiting customers from re-selling Syrian crudes without written permission from Sytrol. This is intended to curb spot trading in Syrian crudes and especially sales to Israel. Besides crude oil, Syria also exports fuel oil and other products. Syria is a member of OAPEC (the Organization of Arab Petroleum Exporting Countries), although not of OPEC.

Syria's major oil export terminals are at Banias and Tartous on the Mediterranean, with a small tanker terminal at Latakia. Banias can accommodate tankers up to 120,000 dead weight tons (dwt), and has a storage capacity of 437,000 tons of oil in 19 tanks. Tartous can take tankers up to 210,000 dwt, and is connected via a pipeline to the Banias terminal. Latakia can handle oil tankers up to 50,000 dwt. All three terminals are operated by the Syrian Company for Oil Transport (SCOT) which is a sister company of SPC.

SCOT is also in charge of Syria's pipelines, including:

  • the 250,000 bpd export line from SPC's Northeastern fields to the Tartous terminal, with a connection to the Homs refinery
  • a 500,000 tons per year refined products pipeline system linking Homs refinery to Damascus, Aleppo, and Latakia
  • a 100,000 bpd spur line from al-Thayyem and other fields to the T-2 pumping station on the old Iraqi Petroleum Company (IPC) pipeline
  • a spur line from the al-Ashara and al-Ward fields to the T-2 pumping station.

In 2000, both the Iraqi and Syrian sections of the IPC pipeline, which links the Kirkuk oil fields in Northern Iraq with Syria's port of Banias on the Mediterranean, were reported as ready for operation. The 552-mile, 1.1-1.4 million bpd pipeline was closed in 1982 after a break in diplomatic ties, then severely damaged during the 1991 Gulf War.

Beginning in late 2000, numerous press reports indicated that Syria and Iraq had reopened the IPC pipeline, and were using it to export Iraqi crude oil (most likely Basrah Light) to Syria, where it reportedly was refined and consumed domestically, freeing up Syrian crude oil for export. These exports earned Syria extra hard currency revenues, plus provided Saddam Hussein with potentially significant revenues outside the UN Oil for Food programme.

As a replacement for the aging IPC, Syria and Iraq reportedly signed an agreement in 2001 on building a new US$200 million pipeline from Kirkuk to Banias port. The two countries also discussed plans for a joint, 140,000 bpd refinery at Banias to handle the export of Iraq (and possibly Syrian) crude oil. The current status of these projects is not known.

Natural gas developments

A key challenge for the Syrian natural gas industry is logistical, with reserves located mainly in Northeastern Syria, while population is centered in Western and Southern Syria. SPC currently is working to increase Syria's natural gas production through several projects. The Palmyra area in central Syria is the site of much of this activity, including development of the Al Arak gas field, which came onstream at the end of 1995. Other gas fields in the Palmyra area include Al Hail and Al Dubayat - both of which are "sweet gas" and two "sour gas" fields - and Najib and Sokhne, which came onstream in 2000. Syria is attempting to expand output at Najib through its central area gas project. Foreign energy companies have been invited to submit proposals on gas projects in the Palmyra region. Several have reportedly started work and made modest discoveries.

In October 1997, Syria announced discovery of a large new natural gas field in the Abi Rabah area of the Palmyra region. In addition to supplying a new (completed in 1997), 375-megawatt power plant at Zaisoun in central Syria, the Palmyra fields have been linked with a new pipeline to Aleppo, as well as to the Tishreen power plant in Damascus and the Mhardeh power plant in Homs. Najib, the fourth and final field to be developed in the Palmyra region, started production in 2000 at a capacity of 100 million cubic feet per day. A modest-sized new discovery named Jihar was reported in the Palmyra area in August 2002 by the Croatian company INA Naftaplin, which tested at about 9 million cubic feet per day with estimated reserves of 15 billion cubic metres. This was INA's third gas discovery in Syria since 2002.

According to Ibrahim Haddad, Minister of Petroleum, the Syrian government has been ready since December 2004 to open the tender for another major gas extraction project. If the project were to go ahead, it would be the largest investment in the gas sector, following the US$400 million associated gas project developed six months ahead of schedule by Conoco and TotalFinaElf in the Deir-ez-Zor area, in the Eastern part of the country. This is already allowing Syria to use the gas from its oil fields for domestic consumption.

Among the major companies that have shown interest for this project are TotalFinaElf, Sumitomo and BHP Billiton. Delays in the tendering of this project have pushed TotalFinaElf, a few months ago, to announce a partial disengagement from its operations in Syria.

Meanwhile, concerning the regional gas pipeline project  (the Arab Gas Pipeline) which will eventually link Egypt, Jordan, Syria and Lebanon, Haddad added that, according to preliminary estimates, its capacity would reach 9 million cubic metres per day. This pipeline is expected to feed both the domestic markets of the four countries as well as export markets. Cyprus might also be included and that country announced recently that it would make a decision by October 2005 on where to import its gas needs from. A project to link the island with Syria through an underwater pipeline is currently on the table but it depends on several factors coming together.

Cyprus, which lies 90 kilometres (56 miles) Southwest of Syria, has said could not commit resources to a pipeline link-up with Syria without 100% certainty of gas being delivered into it. The section of the pipeline running from Egypt to Jordan is currently in the final stages of construction, but it remains to be seen whether the extension to Syria will be built. The primary original rationale for including Syria - possible exports to Turkey - looks less likely due to Turkey's economic problems and competition from Iranian gas. Another suggestion is that Cyprus - now an EU member - could liquefy excess quantities of gas and export it to Europe at a favourable price. But a plant to re-liquefy the gas for transportation to Europe would cost as much as US$ 1 billion to build.

If Cyprus were to construct a pipeline, it would be from Vassiliko in the South of Cyprus to the Syrian port of Baniyas. The other option would be to import liquefied natural gas LNG or liquefied petroleum gas in ships. Either of the options would cost an estimated US$100-250 million with extensive storage facilities required. Turkey and Italy are among other countries interested in purchasing gas from Syria.

One thing is certain, Syria will begin supplying natural gas to Lebanon from mid-2005 at preferential prices. During the first year, 1.5 million cubic meters (52.9 million cubic feet) a day will be delivered to the Beddawi power plant near the Syrian border, which is undergoing an upgrade that should be completed by April 2005. Experts have said cheap Syrian gas will contribute to alleviating endemic deficits at the Lebanese national electricity producer, EDL.

Syria's proven natural gas reserves are estimated at 8.5 trillion cubic feet. Most (around three-quarters) of these reserves are owned by SPC, including about 3.6 trillion cubic feet in the Palmyra area, 1.6 trillion cubic feet at the al-Furat fields, 1.2  at Suwaidiyah, 0.8 at Jibsah, 0.7 at Deir ez-Zour, and the remainder at al-Hol, al-Ghona, and Marqada.

About half of Syria's gas is non-associated, with the rest either associated (with oil) or "cap" gas. In June 1999, a new natural gas field, called North al-Faydh, reportedly was discovered by SPC. The field reportedly has production potential of 35 million cubic feet per day.

Syria latest gas tender should see production increase in the coming years, as part of a strategy to substitute natural gas for oil in power generation in order to free up as much oil as possible for export. A number of new gas-fired power projects are currently under construction or being planned. Another possible source of natural gas is imports via the above-mentioned Arab Gas Pipeline. As increased volumes of natural gas feedstock become available, and given abundant phosphate reserves, Syria is adding capacity to produce fertilisers. At present, Syria has two nitrogenous fertilizer plants and one phosphate-based unit, both located at Homs.

Electricity generation

Total installed Syrian electric generating capacity is about half oil-fired, two-fifths natural gas-fired, and 10% hydroelectric. Syria is to switch from oil to gas-based electricity generation with the building of a 750 MW natural gas-fired power plant in Deir Ali, 15 miles South of Damascus. The European Investment Bank (EIB) is providing Syria with a US$259 million loan to part-finance the US$350 million project cost which will be finished in 2007.  It is to be managed by Syria's Public Establishment for Electricity Generation and Transmission.

With Syrian electric power demand growing rapidly, adding electricity supply capacity is an important national priority. Another reason to replace oil-fired power plants with natural-gas-fired plants is to free up oil for export and to avoid becoming a net oil importer in a few years. Two of Syria's largest power stations - the Mahrada and Banias plants - have been converted from fuel oil to natural gas in recent years. Natural gas for these two plants comes from the Palmyra fields. Syria also plans to increase natural gas usage at the dual-capacity (fuel oil or natural gas) Tishreen power plant. Gas for Tishreen is to come from the Omar treatment plant. In addition to these plants, Suwaidiyah Station II had five new natural gas turbines installed in 1989, while Suwaidiyah I operates mainly on associated gas from nearby fields.

In 1993, with Syria suffering ongoing severe electricity shortages, and with the country's power demand growing at a rapid 9% annual rate, the then President Hafiz al-Asad declared that a secure supply of electricity was the right of every Syrian. Since then, existing power stations have undergone a major maintenance programme and four new generating plants have been built (including the 600 MW al-Zara gas/oil plant near Hama completed by Mitsubishi in 2000). Also planned are the 300-MW Zeizoun plant and the 630-MW Tishreen hydro station.

While power generation capacity in Syria now appears adequate, the country's power distribution network remains a problem. Transmission losses are estimated as high as 25% of total generated capacity due to a variety of factors including poor quality wires and transformer stations. In 2000, the European Investment Bank (EIB) agreed to lend US$100 million for expansion and upgrading of the country's power transmission network. This was supplmented by another US$130 million in 2001.The project, scheduled for completion by 2005, involves construction, upgrading, and expansion of sub-stations, overhead power lines, and underground cables. In addition to the EIB, funds for this project are coming from Arab Gulf states and the Syrian government. In March 2001, Kuwait agreed to loan Syria US$65 million to help double the size of a natural-gas-fired power plant at Nasriyeh, Northeast of Damascus. Nasriyeh currently has capacity of 300 MW.

In March 2001, a project to link the electric power grids of Syria, Egypt, and Jordan was completed, with an inauguration ceremony attended by Egyptian President Husni Mubarak and Jordan's King Abdullah. Linking the three grids together creates a network of approximately 45 GW. In the future, the intention is to link up with Lebanon, Turkey and Iraq as well.  In 1998 Turkey reported that its 115-mile transmission line from the Ataturk Dam to the border region with Syria was completed, but that the electricity could not be provided due to Syria's delayed construction on the connecting grid. In 2001, Syria and Iran signed an agreement on joint cooperation in power production, transmission, and distribution.

In May 1999, the Director General of Syria's Atomic Energy Commission signed an agreement with Russia on cooperation in peaceful uses of nuclear power, including construction of two nuclear reactors in Syria. On 23 February 1998, Syria and Russia had signed an agreement on the peaceful use of nuclear energy, and in July 1998 the two countries had agreed on a timetable for a 25 MW light-water nuclear research centre project in Syria with the participation of Russia's Atomstroyeksport and Nikiet. The project appears to have been abandoned, however, due to lack of financing. Russia's Minister of Atomic Energy stated in January 2003 that the project was no longer under discussion.

Overall, Syria hopes to add 3,000 MW of power generating capacity by 2010, at a probable cost of around US$2 billion, but progress toward implementing these projects has been slowed by a lack of investment capital. Foreign-owned power projects are still not under consideration.

 

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