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Page added on February 17, 2018

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Russia Is Taking Over Syria’s Oil And Gas

Production

It finally happened…

In accordance with an energy cooperation framework agreement signed in late January, Russia will have exclusive rights to produce oil and gas in Syria.

The agreement goes significantly beyond that, stipulating the modalities of the rehabilitation of damaged rigs and infrastructure, energy advisory support, and training a new generation of Syrian oilmen. Still, the main international aspect and the key piece of this move is the final and unconditional consolidation of Russian interests in the Middle East.

Before the onset of the blood-drenched Civil War, Syrian oil production wavered around 380,000 barrels per day. It has declined for some time then, since its all-time peak production rate of 677,000 barrels per day in 2002. Although the Islamic State was allegedly driven underground, the current output still stands at a devastating 14–15,000 barrels per day.

As for gas, the production decline proved to be lower (it fell from 8 BCm/year to 3.5 BCm/year) due to its greater significance within the domestic economy. 90 percent of the produced gas in Syria was used for electricity production (as opposed to oil, which was either refined domestically or exported), and in view of this, the government took extra care to retake gas fields first as the prospects of reconquest became viable enough.

It’s an understatement to say that whoever takes over Syria’s energy sector will receive a desolate ruin. The country’s refineries need thorough reconstruction after their throughput capacity has halved from the pre-war level of 250,000 barrels per day. This task will most likely be carried out by Iranian companies, in accordance with agreements signed in September last year, which also involved the reconstruction of Syria’s damaged power grid. However, it remains unclear whether this project will go through, as Tehran counted upon an Iran-Venezuela-Syria consortium, which is all but feasible now against the background of Venezuela disintegrating, a new solution ought to be found. In any case, Tehran already got what it wanted in Syria as Iran’s Revolutionary Guard already secured the telecommunications sector.

Russia isn’t the only country that could have helped Syria to rebuild its oil and gas sector — as stated above, Iran could also lend a hand. However, Iran lacks the funds to invest heavily in Syria’s infrastructure — it needs foreign assistance to kickstart new projects at home aggravated by aging infrastructure and rapidly increasing demand. European companies are unlikely to get interested in Syria unless the EU embargo is lifted (in effect until June 1, 2018). Since the end of largescale military operations in Syria did not bring about a change of regime and Bashar al-Assad remains president of Syria, it would be surprising for Brussels not to prolong the sanctions regime (the U.S. will do it without a moment’s hesitation).

Sanctions-wise, Moscow is unafraid of any consequences for it is already under European and U.S. sanctions. With a long-range goal in mind, it could even assent to the significant cost of rebuilding Syria’s oil and gas sector — IMF put the expenses at $27 billion in 2015 but the current estimate lies most likely between $35–40 billion. This includes the totality of rigs, pipelines, pumping stations etc. to be repaired and put back into operation. In some areas, for instance, in the predominantly Kurdish-populated northern provinces with its heavy oil deposits, it’s unlikely to seize the opportunity. Moreover, it remains unclear what will happen to the fields (including Syria’s largest oil field, Al Omar) that were retaken by Western-backed militias, not the Syrian army.

Unfortunately for Royal Dutch Shell (NYSE:RDS-A) which was forced to let go of the 100 kbpd Al Omar field because of the stringent sanctions regime, Damascus seems intent on consolidating the energy sector under the guidance of the national oil company, SPC. By means of political hand-wringing and the extension of Kurdish political rights within a united Syria, this goal can be achieved; however, the issue of selling the oil is just as acute as is its production.

Most of Syrian export-bound oil was destined to Europe, partly because of its geographic vicinity, and partly because European companies Shell and Total (NYSE:TOT) were the largest shareholders in the sector. This is no longer possible as long as the EU ban on Syrian oil exports stays in place. Thus, the new owner would have to find new market outlets, either by relying on adjacent countries like Turkey or Lebanon, or by finding buyers in Asia.

Interestingly, there has been little to no discussion so far on which company will have to take up the uneasy job of bringing Syria’s energy sector back to life. Throughout the war years, only the minuscule Soyuzneftegaz ventured into Syria (eventually relinquishing its prospects in 2015). Tatneft, a state-owned enterprise that develops Tatarstan’s oil and gas fields, is an obvious candidate since Syria (along with Libya, to their detriment) was their first attempt to internationalize their activities. Just as it girded itself for the commissioning of the Qishma oil field, full-scale war broke out and the company was forced to abandon it. Tatneft, Russia’s fifth-largest producer, is interested in returning to Syria once conditions allow for it. Beyond that, it’s still unclear if state majors (Rosneft, Gazprom Neft) would want to join in.

Taking control of gas fields seems a better (and more profitable) bet for Russia. If it manages to secure a fixed price, stable demand is guaranteed domestically, as gas will remain the dominant electricity generation input. Moreover, the continental shelf of the Eastern Mediterranean has yielded the likes of the Zohr, Leviathan and Aphrodite. Lebanon, whose sweetest spots are in-between Zohr and Leviathan, is also inching closer to tap into its assumed gas bounties.

Syria’s offshore potential is still shrouded in mystery, despite some seismic survey in late 2000s, most of the times one just hears allusions that it is as prolific as that of Israel, Egypt or Cyprus. An early USGS estimate put Syria’s potential offshore gas reserves at 24 TCf (700 BCm), more than double of its onshore gas, while its oil reserves at a “mere” 50 million tons, a sixth of its onshore oil reserves.

Syria’s proven reserves of 2.5 bln barrels (341 million tons) of oil and 10.1 TCf (285 BCm) of gas might seem meager compared to those of neighboring Iraq or allied Iran. Taking into consideration that one-third of its reserves are very heavy, viscous crudes, Damascus will have to sweeten the deal to bring in big Russian names — companies that can genuinely make an impact and not just take a chance. But geopolitically, it might be a wise move.

Russia has been keen on increasing its foothold in Iraqi Kurdistan (Rosneft, Gazprom Neft), tapping into Lebanon’s offshore gas (NOVATEK), and having a bigger say in Eastern Mediterranean affairs in general. For that, taking over Syria’s oil and gas sector might be a very powerful, non-military, tool.

By Viktor Katona for Oilprice.com



10 Comments on "Russia Is Taking Over Syria’s Oil And Gas"

  1. bobinget on Sat, 17th Feb 2018 12:00 pm 

    Premature. Below, a pro Israel view;
    http://www.washingtonexaminer.com/how-israel-intends-to-defeat-iran-in-syria/article/2649315

    “In the next several months, Israel is likely to aggressively strike Syrian regime headquarters in Damascus”.

    “As we saw in last weekend’s Israeli Defense Force strikes in southern Syria, Israeli Prime Minister Benjamin Netanyahu’s government is determined to defeat Iran’s emerging power projection stronghold in Syria. They are right to do so.”

    Opinion:
    If Israel intends to take on BOTH Iran and Russia
    Israel will need your sons and daughters to sign up.

  2. bobinget on Sat, 17th Feb 2018 1:13 pm 

    Old timers here must be tired of me bringing up Chinese, Russian dominance over Venezuelan exports. Venezuela still exports crude to the US.

    https://www.reuters.com/article/us-oil-venezuela-usa/venezuelas-u-s-oil-sales-rebound-in-january-still-below-year-ago-idUSKBN1FQ2YQ

    Venezuela’s oil output fell last year to its lowest level in almost three decades, hitting exports of crude and refined products, especially to the United States. [L1N1P61GB]

    The country’s oil exports to the United States were 476,550 barrels per day (bpd) last month, 29 percent lower than in January 2017, according to the data. But state-run PDVSA’s oil exports recovered slightly versus the previous month due to larger sales of upgraded crude from Venezuela’s Orinoco Belt.

    In December, Venezuela’s crude exports to the United States fell to 392,710 bpd, knocking 2017’s average to its lowest level since 1991. (fact)

    My Opinion:
    An oil crisis is already at hand. By May we will be scraping the barrel. Exports will end. WTI will be
    trading in a $70/$80 range. Here’s why.

    Again, Opinion.
    http://www.businessinsider.com/russians-mueller-charged-with-interfering-2016-election-2018-2

    https://www.usatoday.com/story/news/politics/2018/02/17/indictment-russians-also-tried-help-bernie-sanders-jill-stein-presidential-campaigns/348051002/

    You may ask, what does Russian spying have to do with the ‘price of onions’? (or oil)

    Last Year congress overwhelmingly passed sanctions against N. Korea and Russia (among others) Our Great Leader signed off on every other nation EXCEPT Russia. OGL is now between a huge rock and another.
    If OGL persists in Not signing off on Russian sanctions everyone will ask, why not? If he signs,
    he is of no further use to Putin.
    As I’ve stated time and again, Russia controls
    Venezuelan exports and production.

    Simple like borscht, Putin does what Rex Tillerson
    threatened, cut off all Venezuelan crude oil to the US. The loss of nearly 1/2 M B p/d will have a profound effect on US imports. Next month China opens its own trading platform. The world’s biggest CL importer, can operate, free of USD, NY, London.
    Russia and Saudi Arabia just signed;

    https://www.worldpoliticsreview.com/trend-lines/24211/saudi-arabia-hedges-its-bets-through-closer-relations-with-russia

    http://www.businessinsider.com/russia-and-saudi-arabia-have-signed-3-huge-oil-deals-2018-2

    China game changer:
    http://www.hellenicshippingnews.com/changing-game-china-set-to-shake-up-global-energy-market/

    If/when oil leaps past $100 USD, we will need to BUY yuan to import CL from all but Canada and Ecuador. ( I spent a month in Ecuador and was shocked to see almost no new US products on sale
    in this dollar denominated nation). A bad sign will be Ecuador/ Panama/ switching to Yuan base currency.

    If/when that happens, the USD will continue it’s
    fall against other world currencies.
    http://www.livecharts.co.uk/ForexCharts/dollarindex.php

    WE can no longer ‘print’ our way out of debt once we need to buy yuan.

  3. rockman on Sat, 17th Feb 2018 2:16 pm 

    Bob – Lots of interesting stories. But: “… we will need to BUY yuan to import CL from all but Canada and Ecuador.” Who exactly is “we”? It can’t be the govt since it doesn’t buy imported oil. If the we is US refineries and they have to pay in yuan would they not simply exchange their US $’s for yuan? And while the US govt might “print” some of the monies it uses to pay for various expenses (such as interest on its debt) that “printed money” isn’t used to pay for oil imports since the govt doesn’t buy that oil.

    Which is why I’ve wondered about the emphasis on the petrodollar. Certainly there are some advantages…such as a strong exchange rate. But again. if ExxonMobil has to pay for Saudi oil imports in yuan then it simply does the exchange. And if the yuan is strong XOM takes a bit of a hit. OTOH if the yuan weakens the XOM gets a little bonus. And if the Chinese economy craters as so many have been predicting (it seems forever) the XOM gets a big bonus. Unless, of course, the yuan lovers bail and switch back to the $ as fast as possible.

    Which brings the yuan lovers to the same place as the petrodollar receivers: the volatility of which ever currency they trade in will potentially rotate from a good idea to a bad idea in some unpredictable fashion.

  4. Anonymouse1 on Sun, 18th Feb 2018 2:18 am 

    Grow up creativeman, just because you like to pretend the petro-dollar, and how the uS uses it to finance its global empire AND its bottomless deficit pit is a impertanterbale mystery to you texASS intellect, does not mean you feigned ignorance is transferable. Unless we are talking about, say plant, or boatietard, then, sure. Otherwise, no.

    However, (most) here are well versed on how uS petrodollar hegemony actually works.

    So I have to ask, who are trying to convince with your this latest public display of your ignorance?

    As that moron boatietard loves to say, learn to google there, narrativeman.

  5. O.Espinosa on Sun, 18th Feb 2018 2:27 am 

    New reserves found in west texas will come ONLINE … AND more oil strikes in the gulf will be found.. and the japanese are VERY VERY CLOSE to figuring out how to process METHANE HYDRATES economically !!

    Plus all the oil in montana and dakaota…

    The total amount of ENERGY to be derived from METHANE HYDRATE is GREATER than all the oil EVER USED ! ! ! !

  6. Sissyfuss on Sun, 18th Feb 2018 8:34 am 

    O Espacornie, from an Ars Technica article,” while the Japanese ability to harvest methane hydrates looks promising, commercial utilization is YEARS away.” Global warming has already figured out how to harvest methane hydrates, by raising the temperature of the shallower Arctic seas. Never mind the non perma permafrost.

  7. bobinget on Sun, 18th Feb 2018 2:06 pm 

    Rockman.
    (1)
    To make all US exports, more attractive we’ve cheapened USD. Tax-cuts, now lawful, made our trillion dollar debt into 2.5 trillion. Doing so, not a
    single road or bridge will be repaired or rebuilt, with Federal funds. Congress just ordered deficit spending in an economy w/4.3% unemployment. IOW’s we just gave a sober, productive economy a years supply of uncut coke.
    (2)
    Rockman knows better then most… The US Has No Energy Policy.. None.. Zip.. Nada.
    Prospects of Israel launching ‘preemptive strikes’
    on Iran are excellent. Yet, congress intends to sell a hundred million barrels of our SPR, to pay interest on debt.
    (3)
    A stock market riddled with bots, hedge funds,
    ultra high-speed computer grifters, Is Not The Economy. Not the Economy.
    (4)
    Everywhere, we read: “US to Become World’s Major oil Exporter” (for how long?)
    Day traders and on line brokers are making money on shale. The only way to $70 CL at this point,
    cheapen USD even further. For that split second before inflation eats away profit, shale, makes money. Not a lot of money, just enough to keep suckers buying stock.
    (5)
    Confusion around ‘fracking’ abounds. The public has little or no interest in how food is grown, much less how oil and gas is ‘mined’. Most don’t give a thought to how much energy is needed to feed N. America. Attention is around transportation not manufacturing, electric power, agriculture,
    housing, medical etc.

    I believe half of America believes hydro fracking
    shale solved our energy ‘problem’. The other half
    believes we need to abolish fossil fuels.

    (6) Russia and China locked up Venezuela exports
    for at least a decade. Tell me now how we simply exchange a failing ‘exchange currency’ for imports.
    “losing Venezuela” USD collapse, continues to be oil’s biggest ignored story masked by shale and political infighting.

    (7) Saudi Arabia and Russia just signed deals
    that make US sanctions moot.
    Now, what?

    With 4,500 law-suits and four bankruptcies Our Great Leader could not get credit anywhere but
    from extortion rate ‘black-money’. Is this to be
    America’s fate?

  8. Simon on Mon, 19th Feb 2018 9:09 am 

    Hi

    I am kinda with Rockman, I do not believe the end of the petro dollar as the only form of acceptable currency to buy/sell oil in, will do anything other than damage the standing of the Dollar. When you buy in another currency you do NOT physically change the currencies, and the banks do not need to even have the currency.

    Simon

  9. bobinget on Mon, 19th Feb 2018 11:43 am 

    https://www.rt.com/business/419235-venezuela-petro-pre-sell/
    This link brought to you by one of Russia’s US propaganda outlets ‘RT’

    Sorry Simon. If/when ‘we’ lose buying power of USD, we simply go bankrupt. Look at the bright side: Life in Italy, Spain, UK, isn’t so bad, is it?

    Obviously, US still the most powerful military power, will command fear and respect.

    Petrodollars permit US entry of eight million barrels
    CL everyday for a promise to pay sometime in the future. At some point, every tax dollar collected
    will be needed to pay interest on those bonds.
    As our USD become less attractive to lenders, import prices inflate. Protectionism drives import
    prices even higher. What next?

    http://www.livecharts.co.uk/MarketCharts/crude.php CL over $62 in reaction to weaker buck,
    Check out all currencies on left.

  10. taibi on Mon, 26th Feb 2018 4:58 pm 

    Lindsey Williams told that his Big Oil insider said Trump’s EO of early January will bring all the off shore drilling back into USA- w/ US being #1 oil exporter by 2020. This also includes the Gull Island mega field in Prudhoe Bay. Russia will be crushed as will the noncompliant M.E. OPEC cartel. The final destabilization of Saudi Arabia will accomplish this feat within months.Lindsey’s oil friend spoke of a DJIA “panic up” to even 50,000. We shall see.

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