Gazproms Syrian flop

28.01.2014 | Ivan Petrov

Russias Gazprom gained access to the Syrian offshore oil shelf, which hitherto showed no signs of containing major commercial deposits

Representatives of the Russian-Belarusian Interstate Company Soyuzneftegaz (SNG) reported signing of a contract with the Syrian state oil company on follow-up exploration works in the #2 oil and gas unit of the Syrian sea shelf. The agreement signed for a period of 25 years covers 2.190 km of the licensed Syrian offshore zone between the ports of Baniyas and Tartus. During the launch period the contract envisaged US $90 mn in investments, including US $15 mn for geodesic surveying and US $75 mn for drilling of an exploration well

First pancake

SNG had no experience in development of offshore deposits, mainly specializing in the maintenance and delivery of oil and gas equipment as an intermediary between major Russian oil companies and engineering plants. In 2005, when the Russian government wrote off Syrias debt to the former USSR republics, the SNG company that is financially backed by the Russian Arab Business Council won a number of tenders for the development of some Syrian on-land oil and gas units. But in most areas the company did not find any feasible quantities of natural gas and oil. Unit XXVI, located on the border of Syria, Turkey and Iraqi Kurdistan, was an exception. The SNG got access to it in 2005 thanks the withdrawal of the U.S. corporation Devon Energy from the Syrian market. The SNG through its UK subsidiary Emerald Energy Plc bought 50% of the shares of the corporation in the project aimed at development of the unit. Another 50% was purchased by the independent UK company Gulfsands Petroleum.

15 wells drilled in this field by the American company were expected to generate up to 1 million tons of sour crude annually. Syrian specialists justified the expediency of attracting Russian companies to the development of this unit by the fact that they dominated on the European market in this type of oil and, therefore, are able to guarantee the most effective marketing. For the same reasons, Syria gave the XXVII unit to Russian Tatneft, which is considered to be a leading European producer of sour crude.

But, in truth, both these Russian oil companies broke away beyond the borders of Russia for the first time due to the write-off of the Syrian national debt to the former Soviet Union and barter payment for such services in the form of the transfer of licenses for Syrian deposits. At the same time, it was believed for a long time that the key role in the intrusion of these companies in Syria was played a member of the Gazprom group namely, Arkady Rotenbergs Stroytransgaz. Counting on the future resource of Syrian extraction, since 2007 the company has been trying to build a new gas refinery in Syria with a capacity of 1 bn cubic meters of gas per year for refining of oil condensate from the abovementioned units.

In general, the relatively small joint projects of SNG and Tatneft in eastern Syria could become for them a modest yet guaranteed access to the international gas market. However, both companies moved in the wake of the more impressive ambitions of Stroytransgaz. And besides construction of the gas refinery, the company got involved in big geopolitics and began competing with the EU in the project of completion of the Syrian Turkish section of the Arab Gas Pipelines (AGP) extended from Egypt. It would be wise for Syria to refrain from such tragic competition between foreign investors on its territory, but for that Syrian dictator Bashar al-Assad proved to be too dependent. As a result, besides Russia the quota for the right to build pipelines through Syria was demanded by Iran, which provides financing to Bashar al-Assad no less than Moscow. Tehran insisted that the linking of the Syrian and EU gas systems via Turkey was not advisable, arguing that it would be more rational to join the Arab gas pipeline networks with the EU through the construction of an underwater pipeline from Iraq and Syria to Cyprus and then to Greece. This project, named Islamic Gas Pipelines, was officially presented in 2010, right before the outbreak of the civil war in Syria.

New realities

The skirmish that broke out in Syria, in fact, disrupted the plans of Egypt and Iran to increase pipeline gas export to the EU. And for the SNG and Tatneft it brought nothing but losses. At first, Gulfsands Petroleum, which was a partner to the SNG, suspended all operations due to the sanctions imposed against Syria in 2011. Then the Syrian government lost all control over the oil-producing regions bordering Iraq and Turkey. It is quite possible that the Syrian decision to give the SNG the right of development of one of the units on the Syrian shelf may be a compensation for those losses. But that will only happen if the same large deposits of gas and oil condensate discovered in 2010 2012 in the neighboring Cyprus, Lebanon and Israel were discovered on the Syrian shelf. So far, there are no signs of such amounts of extractable resources.

As for Gazprom, it once again changed its stakes in the Middle East. Syria and the successfully disrupted AGP project were replaced by another major partner of the Russian monopoly in the region Israel. The latter´s government at the beginning of 2013 allowed U.S. investors of the recently commissioned large deposit Tamar to give the Gazprom group exclusive rights to the export of liquefied gas from the deposit to the EU and Turkish markets.

This turn of the Russian monopoly from Damascus to Tel Aviv testified that in the third year of the war in Syria an unbridgeable chasm appeared between the previously coordinated gas policy of Iran and Russia. It will automatically disappear as soon as Gazprom somehow breaks Israel´s gas export ambitions or delays the timing of their implementation. But for now Iran, Azerbaijan and Egypt, competing with each other for the access to the natural gas markets of the EU, concluded a nonaggression pact, and are working on ousting the Russian monopoly from the markets of South and Central Europe. As a result, the competition in this sector has grown substantially.

Gazprom, however, succeeded in isolating Ukraine in this sector from the southern direction of gas supplies, which is the second largest consumer of Russian gas in Europe after Germany. Given the price pressure factor, Kyiv was forced to abandon its previously widely publicized policy of seeking alternative sources of gas imports. This created an illusion that Ukraine would soon follow in the footsteps of Hungary, Romania and Bulgaria, where Asian gas exporters intend to win the markets applying the same pricing methods that have been successfully tested against the Russian gas monopoly in Turkey and Greece.

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