Oil In A Week – The Syrian Conflict, Energy, And The Interests Of Countries

Since domestic consumption is increasing (258,000 barrels per day in early 2011), Syria was forced to import some petroleum products

by: Walid Khadduri*

Wars are often accompanied by the spread of false news and claims repeated without verifying their source or authenticity. But as they are repeated again and again, they become facts that are hard to question.


Several factors overlapped in the Syrian war, including: strong popular opposition to a “hereditary republican’ dictatorial regime; a standoff between America and Russia; and regional conflicts. Naturally, there are different reasons and interests behind the same goals, but in this conflict, it is unlikely that there are any oil and gas-related motives.


One of the common widespread rumors holds that Qatar and Turkey intervened in the war against the Syrian regime because of a Qatari project to pump natural gas through a pipeline that passes through Saudi, Syria, and Turkey, and then into Europe. The claim holds that Syria rejected the project and received Russian support, while Turkey and Qatar backed the opposition forces.


No doubt, Qatar is rich in natural gas, and is trying to compete with countries that export to the European market. This is well known, giving some credibility to the claim. However, there are other questionable things about it. First of all, the Qatari government never signed an agreement with the countries concerned for transporting gas through a pipeline network. The only agreement in place is a Qatari-Turkish MOU to export Qatari LNG to Turkey through tankers. This is while bearing in mind that so far, no practical steps have been made to implement this project.


Second of all, Saudi Arabia does not allow the construction of oil or gas pipelines through its territory. There is only one pipeline in the kingdom, which is the Iraqi Pipeline in Saudi Arabia (IPSA). Saudi Arabia gave permission to Baghdad in the early 1990s to export Iraqi oil through the Red Sea using IPSA, before nationalizing it after the occupation of Kuwait.


Thirdly, Qatar possesses massive gas reserves (890 trillion cubic feet (tcf)), and a huge LNG productive capacity (77 million tons per year).


Although most LNG exports go to Asian markets, important supplies were supposed to go to the American market. But because of growing production of shale gas, this market is now saturated and its gas imports have declined, which means that there is a surplus productive capacity. Much of these supplies have therefore gone to Asian markets. Moreover, Qatar and its partners among the international companies export LNG to Europe, especially Britain.


Fourthly, there are huge quantities of Russian gas and gas from the Caspian Sea countries heading to the Turkish market, or through Turkey to Europe.


Fifthly, the Qatari petroleum authorities imposed a ban on new gas productive projects from the North Field since 2005, until geological studies of the field are completed.


Finally, the issue that is most pressing in the markets is not competition between Russian gas and Qatari gas in Europe. Instead, the issue is that both Russian and Qatari supplies are competing with American shale gas exports, which are expected to arrive in Europe in the near future.


The reason behind this competition is the massive difference in prices, as the gas of conventional gas producers in Europe is priced against petroleum products. Current prices stand at $10 to 12 per million BTU, while shale gas prices are set according to prevailing prices in the United States, currently at $3 to 4 per million BTU. President Vladimir Putin, at a recent meeting of the Forum of Gas Exporting Countries in Moscow, spoke about this challenge, which he said was a threat to Russian national security.


The second energy-related claim holds that there are mega Syrian gas discoveries, in addition to the possible reserves in Syrian waters, like other countries in the Eastern Mediterranean.


Oil was discovered in Syria in the 1930s, but production did not start until the 1960s. Production continued at relatively low levels, declining steadily because no mega fields were discovered to offset the depletion. Production began decreasing from 570,000 barrels per day in 1970 to 300,000 barrels per day in early 2011.


Since domestic consumption is increasing (258,000 barrels per day in early 2011), Syria was forced to import some petroleum products. Confirmed gas reserves amount to about 8.5 tcf, which is barely enough to meet domestic demand. This has also forced Damascus to import gas, at least since 2008. As for offshore areas, the Ministry of Oil posted the first tender in February 2007, but no agreement was reached with the companies that participated. The Ministry posted another tender in Spring 2011, but because of the conflict and Western embargo, there was no international participation.


Syria has a strategic location through which it can develop itself to become a hub for Arab oil and gas pipelines. And indeed, both Iraq and Saudi Arabia previously built export pipelines through Syria to the Mediterranean and from there to Europe’s markets. But political disputes shut down these pipelines. Meanwhile, Turkey was able to fill the vacuum, attracting export projects from Russia, the Caspian Sea states, and Iraq, to transport oil to Europe.


Success in this area depends on the strategic geographical location first, and second on a stable political climate, and then on economic transit agreements in a way that each state receives reasonable fees in return for each barrel that crosses its territory, does not affect the competitiveness of the oil crossing its territory, and which relies on contractual terms without sudden and repeated amendments. Syria can play this role again if it achieves a stable political climate and good relations with its neighbors.


As for the alleged mega discoveries, about which there are widespread claims, the truth is that no mega oil and gas fields were discovered in the past years. However, this does not preclude the possibility of achieving future discoveries on land or offshore. Yet this requires huge efforts that are still not possible. Indeed, talk about mega fields that push major countries and their companies to back or oppose the current regime is premature and inaccurate.


* Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy) 




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