• Home
• News Article

Aug 16 2006

more articles from

Syria: Mining

Oil and gas

Syria’s first commercial oilfield began production in 1968, but it was not until the mid-1980s that exports started. Syria is not a major oil exporter by Middle Eastern standards and is not a member of OPEC. However, oil has since become a major pillar of the economy, accounting for around two-thirds of export earnings over the past decade. It also accounts for some 15-20% of GDP and forms a large part of government revenue. Output increased steadily from 1986 until 1995, peaking at 600,000 barrels/day (b/d) in that year. Since then output has declined steadily as the complex Euphrates Basin reservoir has started to be depleted. In 2005, Syria produced on average 420,000 b/d (including some 20,000 b/d of condensates), some 10% below 2004 output. With consumption of petroleum products running at about 230,000 b/d, the amount of crude exported in 2005 dipped below 200,000 b/d for the first time since the early 1980s. High oil prices have softened the blow somewhat, but the decline in output has been most marked for the high-value lighter crudes, which now account for less than 50% of total output. According to the IMF, Syria is expected to become a net importer of crude oil around the year 2010, and the contribution of oil to budget revenue will decline to zero by 2015.

Syria’s oil industry has been dominated over the past two decades by Al Furat Petroleum Company (AFPC) , whose principal shareholder and operating partner is the Royal Dutch/Shell group. The original minority partner was Deminex of Germany, subsequently absorbed into Vebe Oil and Gas. In 2002 Vebe itself was acquired by Petro-Canada, which took over the AFPC assets, consisting of shares ranging from 33% to 37.5% in three oil and gas service contracts and production sharing agreements with the Syrian Petroleum Company (SPC) . At end-2005 Petro-Canada sold these interests to a joint venture of China National Petroleum Corporation and ONGC Videsh of India for €484m (US$610m). At that time, AFPC’s oil production was running at 180,000 b/d. Petro-Canada said that its decision to sell was on the grounds that the AFPC fields are declining and that it held a non-operating stake. The company remains active in Syria, with an exploration permit in Block 2, and bids for other permits pending. A second joint venture, the Deir al-Zour Petroleum Company, formed with a French conglomerate, Elf Aquitaine (now Total ), produces another 35,000 b/d of light crude. Syria also produces 195,000 b/d of high-sulphur crude from the Suweidiyeh and Karachuk, fields operated by SPC alone. Refining capacity is currently 250,000 b/d, with half of that volume processed in the port of Banias, and the remainder at another refinery in Homs. A Memorandum of Understanding was signed in late 2005 with a Russian firm for a 140,000-b/d refinery to be built in Deir al-Zour, although it remains unclear where the crude oil feedstock for such a plant would come from. Falling production in the late 1990s led the government to invite more foreign participation in the sector, in particular seeking more advanced recovery techniques, and offering more attractive exploration contracts. A number of concessions were awarded in late 2003, and the government received promising responses to its 2004 and 2005 bid rounds for more exploration contracts. However, the US sanctions that were imposed in May 2004 caused a number of firms to reappraise the Syrian market. Devon Energy, one of the largest independent oil companies in the US, decided in early 2005 to relinquish its concession in the north-east of the country. It was taken over by its minority partner, Gulfsands Petroleum. Another US firm, Veritas, was initially selected to conduct seismic surveys off the Syrian coast. However, the contract was assigned to a Norwegian firm, Inseis Terra, after Veritas withdrew.

Natural gas is a growth area

With domestic oil production falling, and rising domestic demand for energy, the government began to exploit the country’s substantial natural gas reserves more actively in 1999. Syria has proven natural gas reserves of 11trn cu ft, with some around existing oilfields, and the largest stand-alone reserves close to Palmyra in the centre of the country. Several fields in this region have been developed since the late 1990s, and gas production has risen rapidly. According the Ministry of Petroleum and Mineral Resources , total gas output rose from 2bn cu metres in 1997 to 8.5bn cu metres in 2003, before declining to 8.1bn cu metres the following year. This decline was caused by the fall in oil output, which had the effect of reducing associated gas production. Output of non-associated gas reached 4.5bn cu metres in 2004. Most of Syria’s new power stations have been designed to operate on gas.

Natural gas has long been produced in the north-east as associated gas from the oilfields, particularly in the Suweidiyeh fields. However, most has been flared off, and a gas treatment plant in Jebeisa did not come on stream until 1988. The discovery of a large non-associated gasfield close to Palmyra in October 1997 led to faster development of the sector, with construction of pipelines and treatment plants. In September 2001 a US$400m gas project undertaken by ConocoPhillips of the US and Total was completed six months ahead of schedule. This project allows Syria to use the associated gas currently being flared at its Deir al-Zour oilfields. ConocoPhillips , the lead operator, and Total each hold a 50% stake in the project, which includes the construction of a gas-gathering system and processing plant, as well as a 97-km pipeline to carry 150m cu ft/day of residual gas to the national grid, feeding power stations. The project has since been brought to full capacity. The foreign companies’ service contract expired at end-2005, and operations were handed over to the Syrian Gas Company.

US sanctions have directly affected the oil and gas industry through preventing operating firms from importing American-made equipment. The sanctions have also had an indirect effect on investors because of the fear that they will be extended to a blanket ban on all investment. This has hampered progress with a major gas development project in central Syria. In March 2004 a consortium led by Petro-Canada was selected for negotiations about a contract to develop and operate some 15 gasfields in the central region east of Homs and south of Aleppo at an estimated cost of US$750m. The Canadian firm’s partners were Occidental Petroleum of the US and Petrofac, a privately held oil and gas engineering company that was founded in the US but now operates from offices in the UK and the Middle East. Gas production was scheduled to start 30 months after the signing of the contract at a level of 6m cu metres/day during an initial phase, rising to 9m cu metres/d during a second phase. However, the consortium and the government were unable to conclude contract negotiations, and the scheme was retendered as an engineering, procurement and construction contract in early 2005, which was subsequently awarded to Stroytransexport of Russia. The Russian firm is also working on the construction of a the Syria section of the Arab Gas Pipeline, which will transport up to 10bn cu metres/year of gas from Egypt to Turkey and onwards into Europe via Jordan and Syria.

Another US firm, Marathon Petroleum, discovered gas deposits in the Palmyra area in the early 1980s, but has not proceeded to develop them because of a failure to agree commercial terms with the government. In May 2006, Marathon announced that it had signed a revised production-sharing contract for these fields. The agreement included a provision entitling Marathon to sell the assets to a third party. The oil minister, Sufyan Alaw, who was appointed to the post in a February 2006 cabinet reshuffle, said that Petro-Canada had expressed interest in acquiring these assets—the Canadian firm has declined to comment. Mr Alaw said that the fields had the potential to produce some 700m cu metres/y of gas. Meanwhile, INA Naftaplin, a Croatian firm, has announced plans to develop the Hayan gasfield that it discovered in a block adjacent to the Palmyra area in 2004.

Other minerals

Phosphate is the other major mineral exploited in Syria. In the early 1990s production dropped sharply, reaching a low of 930,000 tonnes in 1993, compared with 1.63m tonnes in 1990, as world demand and prices fell. Since then output has increased, and stood at over 2m tonnes in 2002. Syria also produces marble, gypsum, stone, salt, gravel and sands, but little is exported.

© Copyright Zawya. All Rights Reserved.