Syria desperately seeks fuel
The Assad government is reasserting control over territory, but still faces huge problems sourcing sufficient volumes of oil and gas to meet domestic demand
Syria's energy prospects have been affected in starkly contrasting ways by recent actions from the US administration. The sanctions announced by the Treasury Department's office of foreign assets control in November on entities involved in shipping petroleum to Syria caused severe disruptions to Syria's imports of liquefied petroleum gas (LPG) and gasoil in early 2019. This was when demand for heating fuel was at its height during a spell of bitterly cold winter weather.
At the other end of the spectrum, US president Trump's mid-December announcement that he had decided to pull US forces out of north-eastern Syria has opened the way for the government of President Bashar al-Assad to reassert its control over the country's main oil-producing region. This could enable Syria to reduce its dependence on imported oil and petroleum products.
Prior to the 2011 uprising against Assad, Syria produced 385,000bl/d of crude oil, of which about 235,000 bl/d was processed through the Homs and Banias refineries to cover part of the local demand for petroleum products, and the remainder was exported. The country needed to import gasoil to make up for a shortfall from the refineries. Syria also produced 8.4bn m³ of natural gas in 2010, most of which was used for electricity generation; total installed power generating capacity was about 10GW, of which more than 80pc was gas-fired.
Syria's oil reserves, estimated by BP at 2.5bn bl, are mainly located in two distinct regions: the north-east corner of Hasakeh governorate, where most of the fields were discovered in the 1960s and were operated by the state-owned Syrian Petroleum Company (SPC), aside from the relatively recent discoveries made by UK independent Gulfsands Petroleum in its Block 26; and a stretch of the Euphrates Valley south of Deir ez-Zor, where dozens of fields were discovered and developed by Shell and Total in the 1980s and 1990s. Production from the Deir ez-Zor fields started to decline in the early 2000s, and this region accounted for about one-third of Syria's total output on the eve of the 2011 uprising.
Oil production collapsed from the end of 2011 as a result of a combination of EU sanctions and the withdrawal of the Syrian army from the area to the east of the Euphrates. The Hasakeh fields continued to operate at a much reduced level under the stewardship of local Kurdish forces, and the Islamic State (IS) derived significant revenue from the Deir ez-Zor fields after it took control of this region in 2014.
Trading oil and products within Syria and across the Turkish border (both in and out) has become an integral part of the war economy. It has involved a wide range of actors, including local tribes, groups such as IS and fellow Islamists Haya Tahrir al-Sham (HTS), the Kurd-dominated Syrian Democratic Forces (SDF), regime-affiliated militias and regime-connected middlemen. The government has also imported about 40,000bl/d of crude, on average, from Iran since mid-2013 on the back of credit deals worth at least $3.6bn. Most of the crude is processed at the Banias refinery. Finally, government agencies and private traders have imported products, mainly gasoil and LPG, from various sources, including Iran, Russia and Ukraine.
The Syrian petroleum ministry provides periodic updates on the levels of production and consumption. According to a recent statement by the minister, Ali Ghanem, Syria was producing 24,000bl/d of crude oil at the start of 2019. This was only slightly higher than the figure of 20,000bl/d that he gave at the end of 2017, and well short of the target that he had set at that time of steadily increasing output to over 200,000bl/d by the end of 2019.
The official statements do not specify the sources of Syria's oil output, but they may understate the actual volumes by excluding fields outside government control. Most of the area to the east of the Euphrates is now under SDF control. The fields in the north-east are producing 20,000-30,000bl/d, according to estimates by stakeholders in this region; some of the fields taken by the SDF from IS since late 2017, including Tabiyeh and Omar, are also thought to be producing several thousand bl/d, although oil facilities in this area sustained considerable damage as a result of coalition bombardments
The US decision to withdraw from north-eastern Syria has put pressure on the SDF to reach an accommodation with the Assad regime that would include provision for the government to reassert direct control over the oil fields to the east of the Euphrates. There are, however, a number of complications. Both the SDF and the local interest groups in the oil-producing areas can be expected to push for guarantees of a stake in these resources, for example through a revenue-sharing formula.
Significant investment will also be required to repair damaged infrastructure, which could entail bringing in new foreign partners that are prepared to ignore the risk of being hit by US and EU sanctions. Russian and Iranian companies are the most likely candidates, and they would insist on highly beneficial contractual terms. There is also the question of the former equity partners. Most of these have long written off their Syrian assets, but some, notably Gulfsands, have stated their intention to resume activity as soon as sanctions are lifted.
Based on the government's figures there is a gap of about 90,000bl/d between domestic oil supply and demand for petroleum products. Part of this could be filled by additional production that is not included in the government's official figures, but there is still a significant requirement for imports. The oil minister told parliament in January that the government needs to import $1.2bn worth of oil per year, which would work out at 50,000bl/d at a crude price of $60/bl.
The new US sanctions imposed at the end of 2018 caused severe disruption to imports of LPG, but the government now claims to have addressed this through boosting domestic output and devising ways to get round the sanctions, including through contracting smaller vessels that are better able to avoid scrutiny. It is unclear how much crude Iran is still supplying, following the imposition of US sanctions on its oil exports.
The government's fuel predicament would ease considerably if it were able to extend its writ to the eastern and north-eastern oil fields, and to regain control over the ConocoPhillips associated gas processing plant to the east of Deir ez-Zor, which is designed to process LPG along with natural gas captured from surrounding oil fields. However, it is unclear how much additional fuel it would garner, given that these facilities are already supplying much of their ongoing output to government areas through internal trading deals, while some units may be beyond repair.
Brighter gas prospects
The natural gas situation is more comfortable for the authorities. Most of the major production facilities are in government hands in the region between Raqqa, Palmyra and Homs. IS inflicted severe damage on some facilities, notably the Jihar/Hayan plant outside Palmyra, but production has been brought up over the past year to about 16mn m³/d, or an annual equivalent of 5.8bn m³. Most of this output is coming from the South Middle Area, North Middle Area and Shaer/Ebla developments, which are operating at about 70pc of their capacity. Restoring output to pre-conflict levels would require extensive rehabilitation of damaged facilities, in particular the Jihar/Hayan plant and the ConocoPhillips complex.
Almost all of Syria's gas output is being used for power generation. Operating capacity is about 40pc of the pre-conflict level, and prospects for repairing some of the most seriously damaged plants are not encouraging. Iranian companies are working on repairs to two of the five units of the 1,065MW Aleppo power station, and Iran's Mapna has a contract to build a new 540MW station near Latakia.
The fuel crisis in early 2019 was a stark reminder of Syria's vulnerability to energy supply shortages. Over the course of the conflict the government has found ways to work around this problem, but this has entailed creating dependency on external backers, primarily Iran, and on special interest groups working within or on the margins of the system. Consumption is effectively rationed, and the government reckons that the cost of supplying subsidised fuel is £1.2bn ($2.7bn) a year.
Regaining control over north-eastern Syria would provide some respite to Syria's energy difficulties, but it is doubtful whether the Assad regime can mobilise sufficient investment to restore energy self-sufficiency.
David Butter is Associate Fellow, Middle East and North Africa Programme, Chatham House, London