IMRC Information Management Resource Center Fuel Study North Syria Contents
Abbreviations 4 Introduction 5 Highlights 5 Background 7 Research Method and limitations 9 Oil Market System 10
Oil Market Environment 12 Oil Market Value Chain 14 Key Infrastructure, and Support Services 29
Impact of fuel price and availability on Farmers and food processing factories 32 Environmental Impact of local oil refinery 33 Conclusion and Recommendation 33 List of figures
Figure 1. Annual Oil & Gas Production in Syria 7 Figure 2. Main Security incidents at Fuel market system 13 Figure 3. Historical petroleum exploration in Syria. 15 Figure 4. Refinery Machine in Idleb Governorate 17 Figure 5. Challenges of Oil Refinery stations 18 Figure 6. Monthly Refined Quantity Per Refinery Station. 18 Figure 7. Volume of Sales at Refinery Stations. 18 Figure 8. Gross Profit at Processor Gate 19 Figure 9. Price of Oil Products 19 Figure 10. Traders Challenges at Fuel Market System 20 Figure 11. Oil-Wholesalers at Sub-District Level 21 Figure 12. Oil-Retailers at Sub-District Level 22 Figure 13. Oil-Wholesalers Volume of Sales 22 Figure 14. Oil-Retailers Volume of Sales 22 Figure 15. Type of Oil Products at Wholesalers Gate. 23 Figure 16. Type of Oil Products at Retailers Gate. 23 Figure 17. Price of Oil-Products at Wholesalers Gate 24 Figure 18. Price of Oil-Products at Retailers Gate 24 Figure 19. Oil-Traders Gross Profit in 2019 24 Figure 20. Individual Weekly Consumption of Oil Products 25 Figure 21. Consumer Challenges at Fuel Market System in Syria 26 Figure 22. Diesel Price at Consumer Gate 27 Figure 23. Gasoline Price at Consumer Gate 27 Figure 24. Home-Gas Price at Consumer Gate 28 Figure 25. Fuel Seasonal Calender in Syria 28 Figure 26. Wholesalers Restocking Challenges 30 Figure 27. Retailers Restocking Challenges 31 Figure 28. Daily Wages rate at Refinery Stations. 32 Figure 29. Refinery Station in Jarablus Sub-District. 33
List of maps
Map 1. Areas covered by the field research (June-July 2019) 10 Map 2. Oil Market System in NWS June-July 2019” 11 Map 3. Controlling actors over oil and gas resources in Syria 16 4 Fuel study in North Syria
Abbreviations
BP British Petroleum bpd Barrels per day cbmd Cubic meters per day EMMA Emergency Market Mapping Analysis tool FGD Focus Group Discussions FSL Food Security and Livelihood Cluster GoS Government of Syria HH Household HTS Hayat Tahrir Al-Shaam IDPs Internal Displaced People IMRC Information Management Resource Center ISIS Islamic State of Iraq and Syria MW Megawatt NES North East Syria NMAGP North Middle Area Gas Plant NWS North West Syria sqm Square meter SSG Syrian Salvation Government TAF & NAO Turkish Armed Forces and National Army (opposition) tcf trillion cubic feet tmb thousand million barrels USD United States Dollars 5 Fuel study in North Syria
Prior to the Syria crisis, oil market used to be Introduction entirely governed by the Government of Syria (GoS). Since the Syria crisis started in 2011, iMMAP Information Management Resource Center (IMRC) the domestic fuel market system has been conducted a fuel market study focused on northwest Syria dramatically changed and directly impacted during the period of June-November 2019. The selection by the governance approaches and rules of of fuel markets was carried out in close coordination controlling actors (mainly the Islamic State with the Food Security and Livelihood Cluster (FSL) at of Iraq and Syria (ISIS) and Syria Democratic the South Turkey Hub. This study aims to enhance the Forces (SDF)) who have/had control over the understanding of the situation of the fuel market system region of North East Syria (NES), where the in NWS, identify the local dynamics of the fuel market, majority of oil fields are located. impact of the crisis on the fuel value chain market and pinpoint the main coping strategies that fuel market Field data and the present study findings in- actors adopt as influenced by the crisis and its market dicated that the exporting of crude oil that is environment. under Kurdish (SDF) control to other territories is limited to two traders who have monopoly over the exporting of crude oil to other terri- Highlights tories. To be precise, one trader monopolizes the exporting of crude oil to areas controlled Based on the secondary information and the collected by Turkish Armed Forces and National Army primary data, this section presents main findings of this (opposition) (TAF&NAO), and the second trad- report as follow: er monopolizes the exporting of crude oil to GoS-controlled areas. The Syrian oil fields are concentrated in the Deir-ez-Zor governorate, near the Iraqi border Study participants reported that in 2018 a in the eastern part of Syria, and Hassakeh company called Watad Petroleum became governorate in the north-east Syria. There a key player in the fuel market and rapidly are also some oil fields located at Al Raqqa gained a monopoly over the oil market in Idleb governorate in northeast Syria. According to governorate. According to The Syria Report the British Petroleum (BP) Statistical Review of April 2019: Watad was founded in Idleb in of World Energy 2019, Syria has oil reserves 2017, weeks after Hayat Tahrir Al-Shaam (HTS) of 2.5 thousand million barrels (tmb), which established the Syrian Salvation Government corresponds to 0.1% of the world reserves. (SSG), which granted it a monopoly on the In addition, the country has 9.5 trillion cubic import and distribution of oil products in all 3 feet (tcf) of natural gas in 2018, corresponding HTS areas . In the beginning of 2018, Watad to 0.1% of the total world reserves.1 started operating as a privately-owned oil supplier. Data indicated that both availability Syria’s oil-sector is in turmoil because of the of oil products and access of oils products by ongoing civil conflict that began in the spring households in Idleb governorate witnessed a of 2011, with oil and natural gas production notable improvement after the establishment declining dramatically since then. According of Watad company. Moreover, the literature to the BP Statistical Review of World Energy review highlighted the lack of clarity about 2019, the production of oil dramatically de- the ownership of Watad as a company and clined by 93 per cent (from 353,000 bpd2 /2011 how it gained a monopoly of such a profitable to 24,000 bpd /2018). Likewise, the production and important fuel sector. However, Watad of crude oil and condensate decreased by 95 is perceived by the local community as an per cent in 2018 as compared to 2011 (from affiliation party to the SSG. 319,000 bpd/2011 to 16 bpd/2018). The Syrian crisis impact on the state’s natural gas liquids production was slightly lower, but still notable, with a 76 per cent decrease rate (from 34,000 bpd/2011 to 8,000 bpd/2018).
1 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review- 2019-full-report.pdf 2 barrels per day. 3 https://www.syria-report.com/news/oil-gas-mining/hts-establishes-oil-monopoly-importing-europe 6 Fuel study in North Syria
Oil felds in east and northeast Syria have been Explosions due to oil over-heating incidents in a state of flux since the summer of 2012. The and similar related incidents were reported presence of several military actors has had a across the assessed areas, due to the low direct impact on the production and process- quality of the refined oil products5 and other ing of oil products. During the reporting period, cases of malfunctioning equipment/machines. data showed that SDF controls most oil fields The use of primitive methods in oil refining (around 70 percent of oil fields) which gives coupled with a lack of environment protec- SDF the power over the crude oil, however, tion measures across oil refining stations will Watad has a monopoly over the imported oil likely proliferate to notable negative impact from Turkey. Furthermore, some interviewed on human health, along with pollution of ag- key informants reported that there was a lim- ricultural lands and water resources near oil ited volume of gasoline being imported from refinery stations. Iraq via the Semalkih cross border. Human displacement due to the conflict con- Military group’s influence on the oil market is tributed to an increase in the demand of fuel/ well visualized and was reported by the inter- oils in areas settled by Internally Displaced viewed fuel market actors as one of the main People (IDPs). However, the fuel demand did challenges they face. In addition to demanding not reportedly increase at household (HH) fuel taxes at the border crossing and/or check level due to the dramatic decrease in the HH points, military groups demand money from purchasing power. Hence, most of these HHs fuel market actors under different types of tended to substitute the refined-oil products, claims such as a shipping-protecting fee 4 mainly diesel, with coal as a domestic energy known as “Tarfiq” in the field, and a land use source that can be utilized, for instance, for fee by the refining stations. warming purposes. Diesel, Gasoline and Home-Gas are the main types of refined oil products that households use in their daily life activities. Study respon- dents reported that the individual weekly con- sumption of diesel deceased in 2019 as com- pared to 2018 by 23% (2.5 Litres/ 2019 and 3.25 Litres/ 2018). In contrast, individual weekly consumption of gasoline increased in 2019 compared to 2018 by 20% (6 Litres/ 2019 and 5 Litre/ 2018). The reported individual weekly consumption of home-gas was stable in 2018 and 2019 at 1.5 kg. In Menbij sub district (which is under SDF control) households, farmers and food processing factories reported that they have access to subsidized fuel: diesel for warming purposes and gasoline for automobile purposes.
4 Shipping-protection fee It called Tarfiq in field and it is indicating that military group accompany the shipment to protect it from being stolen. 5 https://www.sana.sy/?p=898529 7 Fuel study in North Syria
Background
The ongoing conflict in Syria coupled with the subsequent political and economic sanctions that are imposed by the Impact of Crisis on Oil-Sector (Production United States and the European Union has put the Syria’s and Exporting) oil-sector in turmoil, causing huge damage to the oil and natural gas pipelines and its industry across Syria, which Although Syria is considered a small oil producer, its has disrupted its regional oil value chain in the Middle East oil-sector used to have a significant contribution to its and North Africa region. This has negatively impacted revenue with 26 per cent of the total revenue in 2018 6 the extractions, production, refining, development, (IMF, 2010) . According to the BP Statistical Review of and transport of the country’s oil and gas resources. World Energy 2019, oil and natural resources sector in The imports and exports oil products have also been Syria witnessed dramatic damage since the Syria crisis affected by both the crisis and economic sanctions. This began in 2011. See “Figure 1: Annual Oil & Gas production section presents a general background of oil-sector in in Syria”. The production of oil dramatically declined by Syria focusing on three main points: 1) Impact of the 93 per cent (from 353,000 bpd/2011 to 24,000 bpd /2018). crisis on the oil-sector by looking at the production and Likewise, the production of crude oil and condensate exporting figures of oil products since 2011 to date. 2) decreased by 95 per cent in 2018 as compared to 2011 The GoS coping strategy and action at oil-sector, and 3) (from 319,000 bpd/2011 to 16 bpd/2018). The impact on Influence of Russia and Iran on the oil-sector. its natural gas liquids production was slightly lower with a 76 per cent decrease rate (from 34,000 bpd/2011 to 8,000 bpd/2018) 7.
Figure 1. Annual Oil & Gas ProductionOil in Syria and Gas Production in Syria
500
400
300
200 Annual production
100
0 200 2009 2010 2011 2012 2013 2014 2015 2016 2017 201
Oil Production in thousands of barrels per day
Crude oil and condensate production in thousands of barrels per day
Natural gas liquids production in thousands of barrels per day
6 https://www.imf.org/external/pubs/ft/scr/2010/cr1086.pdf 7 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/statistical-review/bp-stats-review- 2019-full-report.pdf 8 Fuel study in North Syria
Subsequently, the country’s crude exports stopped. With the aim to recover the GoS economy, on August It is worth mentioning that Syria used to export more 26, 2019, the Head of Syria Customs Department asked than 150,000 bpd of crude oil in 2010 8. Furthermore, the governor of the Deir-ez-Zor governorate to prepare according to the World Bank report, The Tall of War 2017 state institutions in the border area for the reopening of 9. The capacity of Syria’s two state-owned refineries Syria’s Al-Boukamal border that crosses to the country has fallen to half of its pre-conflict capacity (Energy of Iraqon September 1, 2019. Iraq is traditionally Syria’s Information Agency) The cause of this damage: the main export partner outside crude oil. However, The Syria imposed economic sanctions. Report stated that on September 18, 2019, Al-Boukamal border crossing remained closed for various security and political reasons. The two other official crossings between GoS Coping Strategy to Meet its Oil-Needs the two countries are under the control, on the Syrian US, European and Canadian-imposed economic sanctions side, of the U.S.-supported Syrian Democratic Forces has put huge pressure on GOS. Arabi 21 reported an (Yarubieh, known as Al-Rabia on the Iraqi side) and the ongoing oil-negotiation between SDF and GoS in April U.S. troops themselves (Al-Tanf, known as Al-Walid on 201910 . Throughout these negotiations, there was an the Iraqi side), and remain closed .12 However, the data agreement to exchange oil products, in which GoS gets collected under this study indicated that a small volume crude oil from SDF and in return GoS gives SDF refined oil of gasoline was being imported by SDF from Iraq via an products and access to electricity services. Furthermore, informal crossing point called Semalkih, which connects the exchange ratio between SDF and GoS was reported the Hassakeh governorate with the Iraqi Kurdistan region. to be 75 barrels of refined oil products for 100 barrels of crude oil. The shipping was planned to take place from Al-Omar fields under SDF control to Al-Taim field under GoS control. In line with the GoS effort towards reviving the oil-sector, a new gas well in Arak field located east of Palmyra started production on September 5, 2019. The estimated production of this gas well, named East Arak-2, was 175,000 cubic meters of gas per day (cbmd). East Arak- 2 well feeds into the Arak Gas gathering plant which collects gas from five different wells. In mid-2017, the plant gathered 300,000 cbmd, which, with the help of East Arak-2 ,has increased to at least 475,000 cbmd. Meanwhile, the Syria Minister of Petroleum, announced in September 2019 that the North Middle Area Gas Plant (NMAGP), also known as Twinan, would operate at full capacity before the end of the year (2019). The plant was designed to process up to 3.2 million cbmd in addition to 2,000 barrels of oil per day of condensate. Of-note, the NMAGP, which is located west of the Raqqa governorate, was built by Russia’s Stroytransgaz at an initial cost of EUR 160 million. It was under the control of the Islamic State for several years, but was taken back by GoS forces in August 2017 11.
8 https://www.eia.gov/beta/international/analysis.php?iso=SYR 9 https://openknowledge.worldbank.org/bitstream/handle/10986/27541/The%20Toll%20of%20War.pdf shorturl.at/kns28 10 shorturl.at/kns28 11 https://www.syria-report.com/news/oil-gas-mining/syria-adds-gas-production-and-processing-capacity 12 https://www.syria-report.com/news/economy/reopening-key-border-crossing-iraq-delayed-again 9 Fuel study in North Syria
which entails three layers: the market environment, Influence of Russia and Iran on the the market chain, and the key infrastructures, inputs Oil-Sector and support services. The following two sub-sections present the research methodology and main research Chatham House reported in2019 that oil and gas are study limitations: considered targeted sectors by Russia and Iran, who built up alliances with local businessmen in Syria and work towards having deep economic engagements Research Methods 13. In that regard, Damascus still faces a number of The research gives a snapshot of the market system challenges to revive the oil-sector. First, the USA and status and bottlenecks, through an exploratory approach EU-imposed economic sanctions on Syria are not limited of relevant actors and dynamics of the oil market in to the restrictions on oil sales, but also include foreign northwest Syria. This study was conducted using data investments in its infrastructure and maintenance. available from scholarly journal research articles and the Second, the majority of oil fields have been controlled internet, including websites, social media networks, and by different actors, including ISIS, and were targeted online video-sharing platforms. This information was and heavily damaged by international coalition forces triangulated and supported through field visits to some airstrikes to end ISIS control of these oil fields as these of the points of sale and interviews with key informants militia groups were perceived to be funding themselves in the oil market across northwest Syria. Emergency through these oil fields. Third, the extraction, refining Market Mapping Analysis tool (EMMA) was used to map and sales of oil produced in the east region of Syria were the oil market system. The sample size was not meant reported to be challenging. Fourth, the negotiations to be statistically representative, but study respondents over the control of oil fields in northeast Syria, remain were chosen according to their relevance to the bigger uncertain, even after the USA decision to withdraw picture of the oil market system. This report summarizes from northeast Syria. However, in November2019, the the main findings of the conducted study. US President insisted that the USA military presence in Syria was “only for the oil”, contradicting his own officials Given the sensitive subject of this study, and to avoid who have insisted that the remaining forces were there exposing field enumerators to any security and safety to fight ISIS14 . risk, nine key informants were interviewed in February 2019 to enhance the designing of the data collection In 2018, the Russian pavilion was among the largest, questionnaires. Inputs from these nine conducted key including 70 companies that were promoted widely in informants helped iMMAP select the locations, get an the media. In 2019, only 16 Russian companies attended overview of current dynamic, and contextualize the data the 61st Edition of the Damascus International Trade collection questionnaires. Fair and booked a stand of 200 square meters (sqm) compared to 500 in 2018. The fair did witness, however, iMMAP then selected seven sub-districts of three a signing ceremony for three contracts in the oil and gas governorates; Al Bab, Azaz, Jarablus, and Menbij in sector involving two Russian companies - the highlight Aleppo governorate, Idleb & Dana in Idleb governorate of Russia’s involvement in the event. According to BBC and Suran in Hama governorate. The presence of different News, Syria and Russia signed an energy co-operation territories, existence of markets, oil refinery stations, agreement in 2018, giving Moscow exclusive rights to and oil-trading routes were the main reasons behind the rebuild the Syrian oil and gas sector15 . location selection. Iran’s participation in the Damascus International Trade The field data collection then took place during June and Fair increased in 2019 as well, almost doubling to 60 July 2019. Forty-Two market actors were interviewed companies in a 1,200 sqm stand - the largest in the fair. using face to face interviews, and Sixty-Two consumers Among the contracts signed between Syrian and Iranian participated in nine focus group discussions (FGDs). companies publicized by the local media : a deal to build Market actors include refinery stations, traders (both a 5 Megawatt (MW) renewable energy power plant in the wholesalers and retailers), service providers (mainly governorate of Homs, Syria16 . maintenance services and drivers) and key informants (mainly members of the local councils of the assessed areas, and employees at Watad). Furthermore, consumers Research Method and limitations who participated in FGDs were mainly households, farmers, and food processors (mainly dairy and olive oil processors). This study centered on the mapping and analysis of the oil market system in Syria (primarily the northwest region),
13 https://www.chathamhouse.org/sites/default/files/publications/research/2019-03-08RussiaAndIranEconomicInfluenceInSyria.pdf 14 https://www.theguardian.com/us-news/2019/nov/13/donald-trump-syria-oil-us-troops-isis-turkey 15 https://www.bbc.com/news/50464561 16 https://www.syria-report.com/news/economy/summary-61st-edition-damascus-international-trade-fair 10 Fuel study in North Syria
Map 1. Areas covered by the field research (June-July 2019)