US embassy cable - 05DAMASCUS6389

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