Identifier
Created
Classification
Origin
05DAMASCUS6389
2005-12-08 12:58:00
CONFIDENTIAL
Embassy Damascus
Cable title:  

STATUS OF SYRIAN OIL AND GAS SECTOR (C-TN5-01284)

Tags:  ECON EINV ENRG EPET SY 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 006389 

SIPDIS

SIPDIS

NEA/ELA

E.O. 12958: DECL: 12/06/2015
TAGS: ECON EINV ENRG EPET SY
SUBJECT: STATUS OF SYRIAN OIL AND GAS SECTOR (C-TN5-01284)

REF: A. REF A: STATE 213517

B. REF B: DAMASCUS 6015

Classified By: CDA: Stephen Seche for Reasons 1.5 b/d

(C) Summary. The following is a response to INR tasker
C-TN5-01284 that requested specific information on Syria's
oil and gas sectors and plans for future development. Posts
included on distribution have private or state-owned
companies either currently involved in the sector or pursuing
new investments in Syria. Our response follows the numbering
of questions in INR,s original tasker (ref A). End Summary.


A. (U) Oil production and economics:

C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 006389

SIPDIS

SIPDIS

NEA/ELA

E.O. 12958: DECL: 12/06/2015
TAGS: ECON EINV ENRG EPET SY
SUBJECT: STATUS OF SYRIAN OIL AND GAS SECTOR (C-TN5-01284)

REF: A. REF A: STATE 213517

B. REF B: DAMASCUS 6015

Classified By: CDA: Stephen Seche for Reasons 1.5 b/d

(C) Summary. The following is a response to INR tasker
C-TN5-01284 that requested specific information on Syria's
oil and gas sectors and plans for future development. Posts
included on distribution have private or state-owned
companies either currently involved in the sector or pursuing
new investments in Syria. Our response follows the numbering
of questions in INR,s original tasker (ref A). End Summary.


A. (U) Oil production and economics:


1. (C) SARG long-term plans, (five to ten years),for
foreign upstream investment are to encourage outside
investment in the exploration areas not held by the Syrian
Petroluem Company (SPC). There are currently no plans to
open up any of the areas held by SPC at any point in the
future. As a result, industry sources are critical of the
SARG and SPC,s investment plan for the sectors (ref B).
They believe the most promising areas for future development
and investment in the oil sector are held by SPC, but SPC
lacks the institutional management ability to exploit the
areas though it may be able to contract some of the technical
expertise it lacks. They argue that unless the SARG changes
its development policy, oil production will continue to
decline.


2. (C) The SARG will continue to hold future bid rounds, but
none are currently scheduled. Industry contacts have
commented to us, however, that the SARG does consider
unsolicited bids from international oil companies (IOC),
especially majors, on any areas not held by SPC irrespective
of formal bid rounds. Concerning the specific countries INR
queried us on, the following companies are currently pursuing
investments in Syria: INA (Croatian),Tataneft (Russian),
Stroitransgas (Russian),Soyuz Gasneft (Russian),the
National Petroleum Company of China, and ONGC (Indian).
(Note. There are additional European and Arab companies
pursuing investments in Syria not listed. End note.)



3. (U) Deputy PM Dardari announced at a recent press
conference that the investment value of pending oil/gas
projects equals 4.4 billion USD. The SARG,s goal is to flat
line oil production while increasing natural gas production.
Failing that, it hopes to slow down the decline in oil
production, and resulting revenue decline, as much as
possible.


4. (C) Industry contacts tell us that the general terms and
incentives offered by the SARG are similar to those currently
offered by Egypt, and are better than those offered by most
other countries in the region. The specific terms for each
production sharing contract (PSC) are, of course, negotiable.
The negotiating position of majors is generally much
stronger than for independents or foreign state-owned
companies and so their resulting PSCs are more favorable as
well. Industry contacts tell us that the SARG,s modest
exploration-phase investment requirement, generally only
requiring seven million dollars in spending, encourages
companies to pursue opportunities in the sector while
watching the current political situation play out.


5. (C) The petroleum business sector in Syria is friendly
and welcoming towards the USG and US IOCs. Three small
independents were referred to at the SARG oil and gas
symposium in November as US companies (Ref B). All were
welcomed and report in no way feeling disadvantaged by their
nationality. IOC,s operating in Syria are working to
mitigate their dependence on items, from computer systems to
drill bits, that require spare parts with US content. All
IOCs are watching the Mehlis investigation and weighing the
political risk associated with proceeding with pending
projects. US companies involved in the sector have largely
divested of their interests in Syria. No other country,s
IOCs have taken similar action. The local general managers
of Shell, Total, and PetroCanada all tell us they intend to
remain in Syria. PetroCanada,s board is scheduled to meet
on December 15, however, to decide the company,s level of
continued involvement.


6. (C) Syria has been suffering a brain drain to the Gulf in
its oil and gas sectors for decades. SPC limits the wages
IOCs can pay Syrian workers in order to not lose its own work
force to them. Subsequently, IOCs are required to import
most of their professional and skilled staff, as Syrians with
skills and experience often depart for much higher wages in
the Gulf. The nationality of the expats depends largely on
the IOC itself.


7. (C) Contacts in the local industry tell us that there are
Syrians with western education and experience in the field
but SPC rules preclude the IOCs from being able to offer
Syrians a competitive wage. As one told us, &I can,t give
a Syrian 2000 USD per month under Syrian law, but I can
legally hire a Westerner for 250,000 USD to do the same
job.8 IOCs have the same problem with retaining Syrians
once they develop the necessary skills.


8. (C) According to the Iraqi mission in Damascus, there
have been no further bilateral discussions between the SARG
and ITG about building a new 1.4 million bpd crude oil
pipeline between the two countries. The local Total general
manager commented to us that his company had done a
feasibility study on a 1.2 million bpd pipeline along the
route of the existing Kirkuk-Banyas pipeline, but has no
plans to proceed further until the political situation
improves.


9. (U) The French firm BEICIP Franlap completed a $80
million modernization project on the Banyas refinery in 2001.
An Iranian company, NamVaran, is currently executing a $835
million contract to modernize the Homs refinery to increase
the production of middle distillates and improve the quality
of all of the refinery,s products. There have been recent
press reports naming Russian, Chinese, and French firms as
all interested in bidding on additional modernization
projects. The refineries were built with Soviet technology
and are reportedly still in dire need of maintenance and
upgrade.

(C) There have been conflicting public statements by
officials on the specifics, but the SARG is pursuing plans to
build three new refineries. In the last couple of months,
the Minister of Petroleum and Natural Resources, Mohammed
Haddad, has announced the SARG,s intent to pursue: a 70,000
bpd joint-venture refinery with a Chinese company that is
currently in the feasibility study phase; a 140,000 bpd
refinery to be built by the Russian Stroytransgaz company for
two billion USD which lacks financing; and a 140,000 bpd
refinery for the Deir Azur area that Haddad claims to be
discussing with various companies.


B. Natural Gas Production:


1. (U) Syria is part of Arab Gas Pipeline project which
extends from Egypt to Turkey. On December 5, the SARG signed
a contract with Stroitransgas (Russian) to build the first
portion of the pipeline on Syrian territory, from the
Jordanian border to Homs, at a cost of 140 million USD.


2. (C) It is conventional wisdom with local contacts in the
industry that the future of the gas sector in Syria lies with
collaboration with Iraq as Syria does not have sufficient
reserves to support significant exports or downstream
development. No sector contacts, however, were aware of any
ongoing collaboration to develop the Akkas gas field. The
Iraqi mission was likewise unaware of any government to
government discussions or plans for collaboration.


3. (C) On the same day as signing its pipeline contract,
Stroitransgas signed a 200 million USD contract to build a
gas processing plant in the center of the country. In spite
of a reported lack of experience, Stroitransgas beat out a
competing consortium, which had participated in constructing
a similar facility with Conoco-Phillips in the Palmyra area,
to win the contract. Marathon, PetroCanada, INA (Croatian),
and the Syrian Gas Company (SGC ) a state-owned company) are
currently negotiating &the middle area gas project8 to
construct the other infrastructure necessary to bring the
natural gas in their respective areas to market. SGC will
buy the gas. Under the proposed terms of the contract, SGC
would be required to purchase a certain amount of gas daily
that it would in turn sell to Syrian power plants. There is
a plan to build an additional gas pipeline from SPC,s gas
fields in the center of the country to Aleppo. There are no
current plans for gas export given the current levels of
production. If new gas is brought on-line, the Arab gas
pipeline would provide the infrastructure for export to
Turkey, and possibly on to Europe.

4. The pipeline to Lebanon is completed but no gas is being
exported. The SARG claims that current production levels are
insufficient to support exports. When pushed, it further
claims that US sanctions preclude it from acquiring necessary
software and other parts to make the pipeline fully
operational.
SECHE