Syria's drying wells have key role in oiling reforms

by Nina Sovich

Syria is battling to wring extra output from its wheezing oil wells to give vital economic reforms time to take root.
Dwindling reserves mean the country needs to shift from its near-total dependency on oil and develop alternative income streams from sectors such as tourism and financial services. Syria has begun courting foreign oil companies to lift production and offset years of Soviet-style neglect but international political pressure and internal opposition from old-guard Syrian hardliners makes the involvement of western majors uncertain.

If investment isn't secured, though, the country could soon find itself a net importer of oil, sector experts say, a shift that would blow an unbridgeable hole in the country's budget with oil revenue bankrolling a padded civil service that accounts for 50 % of the workforce.
"The government would be in major trouble if oil wasn't selling at this (currently high) price," a western oil company executive based in Syria told. "They have also found 85 %-90 % of the oil that will be found in this country so they have exhausted the play. Their only hope is to get a few more years out of the heavy oil fields, but no one really believes that will solve their economic problems either."

Influential Syrians agree.
"We have to move from an oil economy to one based on banking, services and tourism." says Adib Mayaleh, Governor of the Central Bank of Syria. "Most importantly, we have to change the mindset of Syrians from a socialist system to a market one. This is the hardest task of all."

Syrians may acknowledge the need to move on from an oil-based economy but they also know that only oil or gas can buy the time to allow any green shoots of revised economic direction to flourish.
"In every scenario, Syria will suffer in two or three years if it can't increase its oil and gas exports," says Samir Seifan, managing director of ADC, a Damascus-based consulting firm. "It will create problems for the stability of the currency, not to mention the government."

Syria derives 70 % of its hard currency reserves and 50 % of its budget from oil. The country produces around 420,000 barrels of oil a day, down from a peak of 550,000 bpd in the early 1990s. It uses 225,000 bpd for internal consumption and exports the rest. But production levels are declining so rapidly that in three years the country could be producing just 200,000 bpd, experts from major international oil companies have told.
However, Syria has become wary of some foreign oil companies which they say in the past have treated the country's oilfields roughly before abruptly quitting. In the 1980s Chevron, Marathon Oil, Royal Dutch Shell, BP and even Enron explored for natural gas and oil in Syria. Today the only major oil companies left are Total and Shell.

Abdullah Dardari is a leading reformist and newly appointed deputy prime minister of economic development. He is actively looking to open Syria's reserves to foreign investment and says he is in talks with French oil giant Total, as well as Chinese and Russian oil companies.
"We will do a joint venture with Total," he says. "But we also have to be careful. Our experience with some of the companies hasn't been very good. There have been environmental problems, rapid depletion. (State-owned) Syria Petroleum Company has to think very carefully about who it works with."

Oil companies also have to mull working with a regime that the US State Department claims is aiding Iraqi insurgents and meddling in Lebanese politics.
Hatem Nuseibeh, general manager of Total in Syria, said his company was "very interested in doing more work in Syria," but sources close to Total say any joint venture is contingent on a UN investigation team clearing Syria in a report due late October of allegations its security services condoned the assassination of former Lebanese Prime Minister Rafiq Harriri last February.

Some experts say the Syrian government needs to get over its nationalist impulses and lure foreign investment, recognizingthat companies will want high rewards for the risk of operating in a state shunned by many in Washington.
Nabil Sukkar, an adviser to President Bashar al Assad, says the government "doesn't understand the urgency of the problem" and other sectors won't be able to make up revenue shortfall quick enough. He also says the government is making a mistake by encouraging Russian and Chinese companies to invest.
"Now is the time we need the majors," he says, "The minors don't have the money or technology for this job."

Apart from international political worries, another reason that deters oil majors is the country's relatively low reserves. According to the US Department of Energy Syria has only 2.5 bn barrels of proven reserves, most of which are heavy oil which is difficult to extract and refine. It also contains more sulphur than other types of oil, meaning it is more polluting when burnt.
Oil executives also doubt Syria will be willing to offer the generous terms available in the past. It is much more likely, they say, that Syria will become a transit link to bring natural gas and oil from Iraq to the Mediterranean.
"(Iraq's) Salah al Din field is only 80 km from Syria's (natural gas pipeline) network and it really is a huge field that Total would like to get access to," a Damascus-based executive said.

The idea of Syria as a refining centre and pipeline hub may dovetail nicely with Total's broader objectives to enter Iraq, where it has been excluded since the US invasion in 2003. The field, also called Akas, contains an estimated 2.1 tcf of natural gas reserves, according to the US Department of Energy.
Should Western majors balk at involvement, the prospect of Russian or maybe Chinese partners alarms some, who fear field depletion. China National Oil and Gas Exploration and Development Corporation is currently exploring for oil in northeast Syria.

"Our fields are junk now because for years they were treated with a Soviet mentality," said Ma'amoun Ganama, managing director of Ganama Trading & Contracting Company. "It was production at any price and no concern for health or the environment."
Manouchehr Takin, a senior petroleum manager at the Centre for Global Studies says Syria may have a future in fossil fuels but it depends either on investment by a major oil company or a sudden natural gas find.
"They are inviting in companies and taking a significant political risk in doing so," Takin says. "Hopefully Total will go in. The problem is they really need a major because their fields require significant expertise and a lot of money. I doubt Shell, for example, would want to spend that."

A Shell spokesman said the company was happy with its investment in Syria. Without investment, Takin says, Syria will have to bank on one of the fourteen smaller companies that are exploring for oil and natural gas in the south central region of the country making a major find. So far, only Croatian company INA has struck gas.
"Technically more oil can be extracted from Syria," says Takin, "but my overall impression is that gas in Syria and gas in Iraq is their future."