Daily Star (Lebanon): Syria's troubled oil future: “With estimated proven oil reserves of around 2.5 billion barrels, most experts, including Shell, the main foreign operator in the country, expect that Syria will become a net oil importer within the next decade.”: Monday, October 17, 2005
By Bassam Fattouh
Syria's oil industry faces a serious challenge in reversing the recent trend of declining oil production. From a peak of 590,000 barrels per day (bpd) in 1996, Syria's oil production has fallen to 485,000 bpd last year. With many major oil fields reaching their peak and in the absence of new significant discoveries, most observers predict this decline will likely continue.
The fall in oil output has been accompanied by a surge in domestic consumption. While in the mid-1980s domestic consumption of oil products averaged around 190,000 bpd, in 2003 it hovered around 279,000 bpd. This has reduced Syria's potential to export oil to the extent that nowadays Syria exports only around 200,000 bpd. With estimated proven oil reserves of around 2.5 billion barrels, most experts, including Shell, the main foreign operator in the country, expect that Syria will become a net oil importer within the next decade.
The decline in oil exports represents a fundamental challenge for the future of the Syrian economy. Although oil receipts are modest compared to other oil-producing countries in the Middle East, these constitute an important source of government revenue and the prime earner of foreign exchange. According to the World Bank, the oil sector provides half of the Syrian government's revenues and about two thirds of its export receipts.
Recent government efforts to boost oil production should come as no surprise.Petroleum and Mineral Resources Minister Ibrahim Haddad, has said the Cabinet "underlined the need to pay strong attention to the production of oil and mineral resources so as to dispel worries in the last few years over the decrease in oil production."
Syria's efforts to reverse the trend in declining oil exports have focused on two main areas. The first has been to switch from oil-fired electric power plants to using natural so as to release as much crude as possible for export. This required developing the local gas industry with remarkable success, especially in regional cooperation where Syria played an a primary role in the establishment of the Arab Gas Line Project with Egypt, Jordan, Lebanon and Iraq.
The second has been to intensify the wave of exploration and development through attracting international oil companies by offering them favorable contract terms. Since 2001, the Oil and Mineral Resources Ministry has opened blocks for exploration and since 2003 has awarded exploration and development deals to companies, including Shell, Canada's Tanganyika and Petro-Canada, U.S.' Gulfsands Petroleum and China's CNPC for the development of the Kebibe field. These successes, though small in size, have been overshadowed by the pull-out of companies either because of their inability to find gas and oil in large quantities or because of political pressure and U.S. sanctions. Recent pull outs include Exxon-Mobil, Conoco-Phillips, Devon Energy and there are reports that Petro-Canada is planning to sell its stake in Syria's leading national petroleum company Al-Furat Petroleum Company (AFPC).
Despite its inward-looking and heavy state-controlled economy, reliance on international oil companies and foreign expertise for expanding oil production and reserve base has been Syria's landmark oil policy since the early 1980s. After a stagnation that saw Syria turn into a net oil importer for most of the 1980s, the Syrian Petroleum Company (SPC) formed a joint venture with Shell and created AFPC which produced around 400,000 bpd of high quality crude oil. AFPC is producing no more than 265,000 bpd. Getting production back to 300,000 bpd seems to be a very difficult task.
Whether the new wave of exploration will boost Syria's oil production is yet to be seen. The experience of the late 1980s and early 1990s has not been geologically encouraging, and any forecast of future oil discoveries is a very difficult task that involves much subjective assessment. The oil industry, with the exception of the Petroleum and Mineral Resources Ministry, does not expect major oil discoveries that could compensate for maturing fields and could increase oil output above its current levels.
Syria's ability to exploit geopolitical factors to boost its oil exports seems to have weakened. Syria has played the geopolitical card at least twice : during the Iraq-Iran war of 1980 when Syria closed the Iraqi pipeline and was atoned with Iranian oil shipments and when Syria obtained an average of 200,000 bpd of Iraqi oil through the Kirkuk-Banias pipeline. Syria used the Iraqi oil for domestic consumption while boosting its exports of light crude oil.
So far, Syria has adopted a short-sighted oil policy responded only to stagnation in oil output and focused on areas of increasing production while failing to take into account changes in the international oil industry and fierce competition in discovery and exploration. Although the oil industry took off in Syria almost 40 years ago, lack of investment in both physical and human capital meant that little has changed since the 1970s. Oil receipts have been transferred directly to government coffers with only insignificant amounts getting pumped back into the sector. Syria has two or three mineral sector institutes, which provide basic and often outdated training to deal with the complex Syrian reservoirs. It is no surprise SPC's role in the local oil sector has seen a retreat both in oil exploration and production.
Rather than acting as a potential engine for growth and development, the oil industry seemed to have played the role of a "cash cow" to relief fiscal pressures. It is clear Syria cannot afford this strategy. The country's need for educational and health services and securing jobs for the millions of unemployed will continue to grow as opposed to oil production and exports, which will most likely decline. The past strategy of relying on oil revenues to delay economic reforms and buy time seem not only to have increased the vulnerability of the Syrian economy by funding the distortions and inefficiencies that plague the Syrian economy but could have strangled the goose that lay the golden eggs.
Dr. Bassam Fattouh is lecturer in financial studies, the School of Oriental and African Studies, University of London.
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