Syria's civil war is disrupting its energy industry
The country’s civil war has exacted a heavy toll on its energy sector as government and opposition forces fight for control over the country’s most lucrative resource, as Conal Urquhart discovers
It is a common scene in the countryside of northern Syria: fires burning under blackened tanks, charring the ground below, and billows of thick, black smoke rising to the sky.
The tanks are rough oil refineries manned by young boys who have discovered that fractional distillation is a simple, if not safe, process. “We heat it. Then comes out water, then petrol, then paraffin, and then diesel. About two barrels of oil make one barrel of diesel. We make enough money for food, home expenses,” said one of the amateur refiners from the city of Aleppo in a video uploaded to YouTube earlier this year.
Once refined, the fuel passes through dirty puddles in makeshift pipes before being decanted into small containers and offered for sale on the roadside. It is a dangerous business. Some of the boys pour water on the exposed pipes, using garden watering cans to try to keep the volatile fuel under control, but there have been several reports of explosions at the homemade refineries.
Protests against president Bashar al-Assad’s rule started in 2011 and set off a cycle of increasingly violent crackdowns and retaliations that has seen the country descend into a chaotic and deadly civil war. Around 80,000 people have died in the fighting and 1.5 million Syrians have flee. Assad has lost control of much of the country.
The unrest has inevitably disrupted Syria’s energy industry and led to the withdrawal of many foreign players.
The market has largely shrugged off the loss of Syrian production, which was around 400,000 barrels a day (b/d) of crude, about 0.5% of global crude production, before the unrest began.
The industry was once central to the country’s economy. Before the conflict, oil sales provided 25% of government revenues and subsidised diesel insulated the population from rising prices and low economic growth. The government also had high hopes for attracting new investment. The east Mediterranean offshore has become an exploration hot spot since Israel made a series of major gas discoveries in the area and the country has some oil shale potential that it was pitching to potential investors. The fighting has put paid to those plans. In 2011, the European Union, which bought 99% of Syria’s oil exports, placed an embargo on the country. That forced foreign companies, such as Shell, Total and Gulfsands Petroleum, to declare force majeure and pull out of their contracts with state-owned Syrian Petroleum Company, which operated joint ventures with international oil companies.
Since the embargo, though, the EU has tried to find ways to use the country’s oil to help the opposition push Assad out of office. On 22 April, EU member states eased the embargo to allow opponents of Assad to sell Syrian production. European companies will now be able to import from rebel-held areas so long as the deals are approved by the National Coalition, a rebel umbrella group. “We want regions controlled by the opposition to develop. We want to help economic reconstruction,” German foreign minister Guido Westerwelle told reporters as he announced the easing of the embargo. “People will see there is a real alternative to the Assad regime.”
UK foreign secretary William Hague, though, admitted lifting the embargo was partly symbolic. “The security situation is so difficult that much of this will be difficult to do, but it is important for us to send the signal that we are open to helping in other ways, in all the ways possible,” he said.
The conflict makes an immediate restart of large-scale oil exports unlikely. Rami Abdul Rahman of the Syrian Observatory for Human Rights, which is monitoring the conflict and has contacts in the country, said that all the combatants had access to some oilfields. As well as small-scale homemade refineries, some are taking crude from the fields and transporting it by tanker to Turkey, while the government has managed to keep a limited supply flowing to the country’s main refineries for domestic consumption.
“They are continuing production of crude but few refined products are being produced inside Syria. That is being imported from outside which is leading to an increase in prices of about 400% from £0.25 ($0.37) per litre to £1/l for diesel. There have also been reports of conflicts between groups such as the al Nusra Front and local tribesmen about the oilfields which have led to dozens of deaths,” he said.
David Butter, an expert in Syrian oil based at London’s Chatham House think tank, said that while oil was vital to combatants and civilians for day-to-day life, Syria’s oil reserves were not significant enough to fight over. “Syria’s oil is no prize. It is in the right area for a pipeline from Iraq and there have been seismic tests offshore but they haven’t revealed a great deal yet. Smuggling has always been a problem. Smuggling networks around Syria are long established because of the government’s policy of selling subsidised diesel at prices lower than in neighbouring countries,” he said.
Since oil production peaked in 1995, the industry has needed increasing investment to maintain productivity. “Before the conflict, Syria had a declining output but the decline was stabilising. There were a few big natural gas projects finished in 2009 and 2010. There has been no investment in refining, so there was a huge dependence on imports for gas oil and diesel,” Butter said.
“Oil contributed a lot to the budget and balance of payments. The latest report from the oil minister was 70,000 b/d of production, although natural gas does not seem to have been affected.”
According to Butter, most of the government oil extraction has taken place in the north of Iraq with the co-operation of Kurds and other tribal groups. The rebels, Butter says, have been able to exploit lots of small oil wells near Deir ez Zour in the Euphrates Valley, but are only able produce a few thousand barrels per day. “The EU’s lifting of an embargo could mean something in the future. If rebels acquire semi-autonomous areas, they might be able to sell it but that’s not really practical at the moment,” he said.
Scramble for oil
A spokesman for Shell said the company, one of the oil industry’s largest foreign players, had suspended all activities in the country in December 2011 and that the EU’s lifting of the embargo had not changed their position. UK newspaper The Guardian reported on 19 May that the lifting of the EU embargo had set off a scramble for control of oil wells and pipelines in rebel-controlled areas.
Those battles, according to reports, had mostly been won by the Nusra Front faction of the opposition, which claims affiliation with Al Qaeda and its offshoots in Iraq. The report, though, said that Assad’s government has struck a deal with the Nusra Front to ensure that some oil continues to flow to government-controlled refineries in Homs and Banias.
The government has reportedly stopped trying to control the Sunni-dominated areas of the north-east, where most of the oilfields are located.
Other reports suggest that the Kurdish Democratic Union Party, an offshoot of the Kurdistan Workers’ Party (PKK), control most of the oilfields in the north-east province of Hassakah, which borders Kurdish-dominated areas of Turkey and Iraq. These reports suggest that the Kurds have made similar deals with the Assad government as the Nusra Front, ensuring some oil continues to flow to government-held refineries.
The situation has grown increasingly murky as the fighting has intensified and rebel groups have proliferated. But it is clear that Assad has lost control of the resource that provided 25%of his government’s revenues and supplied domestic consumption, and that some of that oil production is now fuelling his opponents. Syrian oil production has been reduced to a trickle and exploration has ceased. Syria is being broken up into separate areas with the Alawites controlling the coast and much of the south near Damascus, the Kurds in the north-east and the Sunnis everywhere else. It is possible that there may not be a Syrian oil industry in the future. Whatever remains of the oil infrastructure when the conflict ends will probably need substantial investment in existing fields and new deposits.
Politics and oil in Syria
Oil was first discovered in Syria in the 1930s, but the industry has been handicapped by repeated political upheavals. American oil prospectors were first invited to Syria in the 1950s only to see their companies nationalised by the Ba’ath party in 1958. Their operations and all future oil extraction would be carried out by consortiums working with the government’s Syrian Petroleum Company (SPC).
In 1968, Syrian oil production began in earnest when the Karatchok field in Hassakah province was connected to the refinery in Homs. Oil exports did not begin until the 1980s.
The largest foreign venture was the Al Furat Petroleum Company which was half owned by SPC, 32% owned by Shell and 18% owned by Himalaya Energy Syria, an Indian and Chinese consortium. The Deir Ez Zour Petroleum Company was a joint venture between the SPC and Total. Companies from Canada, Poland, Croatia, Russia and Singapore have played smaller roles in the oil industry.
Syrian production peaked at 610,000 barrels a day (b/d) in 1995 and between 2008 and 2010 averaged 400,000 b/d. The US Energy Information Administration says that production had fallen to 157,000 b/d by January 2013, and the Syrian government now estimates it is producing 70,000 b/d.
Syria also has natural gas reserves of 8.5 trillion cubic feet (cf). In 2010, Syria produced around 316bn cf of natural gas but that is believed to have fallen steadily. Gas is used for re-injection to improve oil recovery and domestic electricity generation. Syria has also received gas via the Arab Gas Pipeline which transports gas from Egypt via Sinai.
Syria did have ambitions to become a major transit country. Iraq transported crude oil from Kirkuk to the port of Banias on the Mediterranean coast from 1953 until US air strikes damaged the pipeline in 2003. Rehabilitating the pipeline has been deemed too expensive, but several new pipelines from Iraq and Iran have been discussed.
In September 2010 Iraq and Syria agreed to build two new Kirkuk–Banias pipelines. One of the proposed pipelines would transport 1.5m b/d of heavy oil while the other would have the capacity to carry 1.25m b/d of lighter grades of crude.