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Syria And Lebanon: Oil And Gas Ambitions Hit Reality

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Oil and gas continue to inflame the conflict in Syria even though the Islamic State’s territory has shrunk, and the Syrian government has recovered control over portions of the country. In fact, local players and external actors battle for control and ownership over Syrian oil and gas resources.

Syria’s energy infrastructure has been largely destroyed by rebels, terrorist groups and the Syrian army seeking to reassert control. Due to territorial losses, the strategy of the Islamic State in particular centered on not conceding the oil and gas facilities it once controlled but on destroying energy infrastructures such as the Hayyan Gas Fields located 40km west of Palmyra that were blown up. The Islamic State’s focus around the area of Palmyra was attributed to the fact that the city is the hub between the transfer of the entire Syrian gas production and the power plants that supply electricity and gas to most parts of Syria. Reportedly, the Islamic State had seized a substantial number of oil and gas fields since 2014 primarily in central and eastern Syria such as the Al-Akram gas facility between Palmyra and Raqqa, that produced marketable natural resources and provided it leverage over the Syrian government which has been deprived of a vital source of revenue.

Oil production in Syria from 250-380,000 barrels per day in pre-2011 period fell to 8,000 barrels per day when rebel and terrorist groups including the Islamic State took control. Current production is estimated at 70,000 barrels per day in areas under the Syrian government’s authority.

It is noteworthy that the Syrian energy industry, from equipment and sales to crude transportation, is heavily sanctioned by the United States and the European Union. US sanctions on Syria’s energy industry predate the crisis, but their recent renewal sends the signal to state and non-state actors that revenue generation from the black-market oil and gas trade will not be tolerated. US sanctions target for the first time the Syrian Qatirji group considered to be part of a large-scale oil and gas procurement network aiming to import shipments of oil and gas to the port of Baniyas. Additionally, European sanctions imposed in 2011 prohibit trade on equipment and technology for the Syrian oil and gas sectors including exploration and production, refining and gas liquefaction.

On a parallel level, Russian companies like Gazprom contribute to the restoration of destroyed infrastructure and have upgraded the Banias refinery located in western Syria. Russian companies seem to lead investment in revitalizing Syria’s oil and gas sector. However, due to American and European sanctions, it is deemed difficult for Damascus to find partners to buy its crude exports.

For its part, the US has significant leverage over Syrian oil and gas reserves attributed to American support of the Syrian Democratic Forces (SDF) that carried out military Operation Jazeera Storm that started in September 2017 with the aim to capture territory controlled by the Islamic State east of the Euphrates. As result of Operation Jazeera Storm, the US has de facto leverage over a number of Syria’s oil and gas fields, such as the al-Omar and Tanak oil fields, the Al-Izba and Conoco gas fiels, and the Jafra oil fields that used to present a major source of income for the Islamic State. The US influence is strengthened by the SDF’s control of the two largest dams in Syria namely the Tabqa dam, an 824-MW powerhouse situated 25km west of Raqqah at the Euphrates River, and the Soviet-built dam in western Raqqah. It is estimated that this leverage over Syrian energy reserves and infrastructures can be used as a bargaining power in forthcoming negotiations with the Assad regime for the political future of Syria.

Under these circumstances, the resolution of the Syrian conflict seems to be prerequisite not only for the development of the country’s energy sector but also for boosting regional energy security.  American investment to restore the Conoco gas plant in eastern Syria currently under the control of the US-supported SDF can prove to be multiply beneficial as it can produce almost 50 million cubic feet of gas per day. Equal important is American investment in the two cited largest dams that will provide control over vital reservoirs, as well as the prevention of any third party from monopolizing the Assad government, as this monopolization would allow it to control the shores of the Mediterranean, and thereby establish export plants and control natural gas exported to Europe.

For its part, neighboring Lebanon signed in early 2018its first offshore oil and gas exploration and production agreement for two of its ten offshore blocks with a consortium comprised of France’s Total, Italy’s Eni and Russia’s Novatek, with drilling expected to start in 2019.

Lebanon has already began to suffer from the “pre-resource curse,” in which countries accumulate large-scale debts in anticipation of uncertain oil and gas revenues. This presents an obvious financial risk if gas reserves are not as high as expected, but there is another risk in missing the opportunity to invest in renewables. Compounding this, international companies are hesitant to invest in offshore blocks that are disputed between Lebanon and Israel. Given that Lebanon’s energy sector and its regulatory framework are still underdeveloped, additional laws like a petroleum asset-management department law, a sovereign wealth fund law and onshore exploration law should be enacted to promote confidence in the Lebanese petroleum investment framework, ensure transparency, and lay down solid legal and governance foundations for operating the energy sector.

In fact, challenges that could undermine the development of Lebanon’s gas potential lie in the existence of weak institutional and administrative frameworks that guarantee a gap between declared government plans and ultimate delivery. The development of potential discoveries could help Lebanon reduce its domestic energy-deficiency and dependence on import of oil products only if an exploration, production and monetization model based on best-practice standards and technical expertize materializes.

For the speedy development of Lebanon’s oil and gas sectors, the Lebanese government should increase transparency and stop formulating energy policies that treat the country as an “energy island” by pursuing energy cooperation with neighbors. It is in this context that American and European interlocutors should continue to mediate the demarcation of the disputed 854 square kilometers maritime area between Lebanon and Israel so the two neighbors can embark on trans-boundary gas sharing initiatives on exploration and production. Lebanon should also avoid distributing future oil and gas resource revenues as energy subsidies because subsidies contribute to misallocation of resources, distort energy prices, and lead to large-scale debt accumulation. The funding of Lebanese universities and think tanks to enable them conduct research and to produce Energy White Papers is important to raise public awareness of energy development and pipeline safety.

Evidently, challenges and new prospects are presented for Lebanon and Syria. Conflict resolution, dialogue and cooperation in both countries can contribute to the development of their energy sectors and attract foreign investment in the regional setting. The chances are high but choices still lie in motion.

Antonia Dimou is Head of the Middle East Unit at the Institute for Security and Defense Analyses, Greece; and, an Associate at the Center for Middle East Development, University of California, Los Angeles

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Nord Stream 2: To Gain or to Refrain? Why Germany Refuses to Bend under Sanctions Pressure

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pipeline nord stream

The chances of the sanctions war around Nord Stream 2 to rage on after the construction of the pipeline is finally over seem to be high. That said, we have to admit, with regret or with joy, that it will be completed, and for the following reasons:

Germany, like any other European country, has set itself the task of abandoning coal and nuclear energy within the next few decades. In reality, however, there is no alternative to coal and nuclear energy. Simultaneously forsaking gasoline and diesel cars, which is something Europe dreams about, will inevitably increase the EU’s demand for electricity. However, green energy is unlikely to satisfy Europe’s energy needs any time soon. Hopes for cheap thermonuclear energy are unlikely to come true until 2050 at best. Therefore, in the coming decades, natural gas, Russian and other, will obviously remain the most convenient and cheapest fuel. At the same time, regardless of where the pipelines run, Russian natural gas will account for a significant share of the European and world markets. This is not politics – just a simple economic reality.

Despite the attributed environmental benefits of Nord Stream 2 and the Russian natural gas, the positive impact of replacing coal with natural gas remains largely unclear as it depends on the volume of methane leaking from the processes of gas extraction and transportation. Nonetheless, Nord Stream 2 presents itself as an attractive alternative for the EU as it would help decrease gas prices because Russia will be able to supply the EU with higher amounts of gas, thus, decreasing demand for expensive imported liquified natural gas (LNG).

Nord Stream 2, although a privately-financed commercial project, has political implications. Politics and economics are too closely intertwined, and in the short term at that. The abandonment of Nord Stream 2 will hardly weaken Russia and force the Kremlin to introduce democratic reforms. This will only result in Europe losing a good opportunity to effectively ensure its energy independence, as well as that of its Baltic and Eastern European allies, many of whom, unable to fully integrate themselves into European energy systems, continue to buy electricity from Russia.

At the same time, Nord Stream 2 will help make Germany a guarantor of the EU’s energy security. More and more people now feel that the sanctions against the Russian-German project are essentially meant to undermine Germany’s growing influence. However, even this abnormally cold winter has shown that political problems and competition for influence in the EU are taking a back seat to energy security issues. The disruption in LNG supplies from the United States has only underscored Europe’s need for the Nord Stream. Besides, when completed and controlled by Germany, Nord Stream 2 could be used as a means of pressure against Russia and Russian supplies which is exactly what Brussels and Washington want.

Yet, the United States continues to oppose the Nord Stream 2 project and, thus, trans-Atlantic tensions between Germany and the United States are on the rise. Like the Obama and Trump Administrations which opposed Nord Stream 2 and introduced tangible steps to halt its progress, the Biden Administration is too faced with a lot of pressure by American lobbyists and members of the Congress in order to push back and halt Nord Stream 2 progress and efforts. However, until this very day, US President Biden and his administration did not sanction the project, which could be understood in lights of Biden’s struggling efforts to repair relations with Germany after the Trump Administration’s accusations towards and troop withdrawals from Germany. Thus, although the current administration under Biden still opposes Nord Stream 2, it is reluctant to impose any sanctions because its priorities lie with repairing US-German ties in the Post-Trump era.

The United States is not the only opposing International player to Nord Stream 2, but even many Eastern European countries, including Slovakia, Ukraine and Poland are against the pipeline project in fear of geo-economic insecurity. For instance, it is believed that Nord Stream 2 would cost Ukraine approximately $2 to $3 billion in losses as the transit volumes shift from Ukraine to Nord Stream 2. Another argument put forth by European opposition to Nord Stream 2 is that it would undermine the EU’s energy solidarity or even a potential “Energy Union”; however, Germany and supporters of Nord Stream 2 often highlight that the imported Russian gas would not only benefit Germany, but rather all of Europe. The pipeline is expected upon completion to be able to transport 55 billion cubic meters of Russian Natural Gas to Germany and other clients in Europe!

Despite oppositions, threats of sanctioning and the earlier construction halt in December 2019, it seems that the Gazprom-Pipeline Nord Stream 2 will be completed and will go online soon as the Biden Administration continues to refrain from imposing sanctions.

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How Azerbaijan changed the energy map of the Caspian Sea

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image source: azertag.az

Since the collapse of the Soviet Union, crude oil and natural gas have been playing a key role in the geopolitics of the Caspian region. Hydrocarbon revenues became an important source of economic growth for the Caspian Basin countries such as Azerbaijan, Kazakhstan, and Turkmenistan. Shortly after gaining independence in the early 1990s, the Caspian states implemented energy policies that protect their national interests. According to the BP 2020Statistical Review of World Energy total proved energy reserves of the Caspian states are: Kazakhstan has30.00 billion barrels of oil and 2.7 trillion cubic meters of gas, Azerbaijan 7.00billion barrels of oil and 2.8 trillion cubic meters of gas, and Turkmenistan 0.6billion barrels of oil and 19.5 trillion cubic meters of gas.

Such rich hydrocodone reserves allowed the Caspian states to contribute significantly to the global energy markets. Today, the Caspian states are supplying oil and natural gas to various energy markets, and they are interested in increasing export volume and diversification of export routes. In comparison with Turkmenistan and Kazakhstan, which supply energy sources mainly to China and Russia, Azerbaijan established a backbone to export energy sources to Europe and Transatlantic space. As the Caspian Sea is landlocked, and its hydrocarbon resources located at a great distance from the world’s major energy consumers, building up energy infrastructure was very important to export oil and gas.

To this end, Azerbaijan created the milestone for delivery of the first Caspian oil and natural gas by implementing mega energy projects such as Baku-Tbilisi-Ceyhan (BTC) oil pipeline and Southern Gas Corridor (SGC).Now, one can say that both energy projects resulted from successful energy policy implemented by Azerbaijan. Despite the COVID-19 recession, the supply of the Azerbaijani oil to the world energy markets continued. In general, the BTC pipeline carries mainly Azeri-Chirag-Gunashli (ACG) crude oil and Shah Deniz condensate from Azerbaijan. Also, other volumes of crude oil and condensate continue to be transported via BTC, including volumes from Turkmenistan, Russia and Kazakhstan. As it is clear, the BTC pipeline linked directly the Caspian oil resources to the Western energy markets. The BTC pipeline exported over 27.8 million tons of crude oil loaded on 278 tankers at Ceyhan terminal in 2020. The European and the Asian countries became the major buyers of the Azerbaijani oil, and Italy (26.2%) and China (14%) became two major oil importers from Azerbaijan.

The successful completion of the SGC also strengthened Azerbaijani position in the Caspian region. The first Caspian natural gas to the European energy markets has been already supplied via Trans Adriatic Pipeline (TAP) in December 2020, which is the European segment of the SGC. According to TAP AG consortium,a total of one billion cubic metres (bcm) of natural gas from Azerbaijan has now entered Europe via the Greek interconnection point of Kipoi, where TAP connects to the Trans Anatolian Pipeline (TANAP). The TAP project contributes significantly to diversification of supply sources and routes in Europe.

Another historical event that affected the Caspian region was the rapprochement between Turkmenistan and Azerbaijan. The MoU on joint exploration of “Dostluk/Friendship” (previously called Kapaz in Azerbaijani and Sardar in Turkmen) offshore field between Azerbaijan and Turkmenistan was an important event that will cause positive changes in the energy map of the Caspian Sea.

The Assembly of Turkmenistan and Azerbaijan Parliament have already approved the agreed Memorandumon joint exploration, development, and deployment of hydrocarbon resources at the “Dostluq” field. It should be noted that for the first time two Caspian states agreed to cooperate in the energy sector, which opens a window for the future Trans-Caspian Pipeline (TCP) from Turkmenistan to Azerbaijan. Such cooperation and the future transit of Turkmen oil and gas via the existing energy infrastructure of Azerbaijan will be a milestone for trans-regional cooperation.

The supply of the Caspian and Central Asian natural gas to European energy markets was always attractive. Therefore, the TCP is a strategic energy project for the US and EU. After the signing of the Caspian Convention, the EU officials resumed talks with Turkmenistan regarding the TCP. The May 2019 visit of the Turkmen delegation headed by the Advisor of the President of Turkmenistan on oil and gas issues was aimed at holding technical consultations between Turkmenistan and the EU. Turkmen delegation met with the representatives of the General Directorate on Energy of the European Commission and with the representatives of “British Petroleum,” “Shell” and “Total” companies. TCP is a project which supports diversification of gas sources and routes for the EU, and the gas pipeline to the EU from Turkmenistan and Azerbaijan via Georgia and Turkey, known as the combination of “Trans-Caspian Gas Pipeline” (TCP), “South-Caucasus Pipeline Future Expansion” (SCPFX) became the “Project of Common Interest” for the EU.

Conclusively, Azerbaijan is a key energy player in the region. Mega energy projects of the country play an important role to deliver Caspian oil and gas to global energy markets. However, the Second Karabakh War has revealed the importance of peace and security in the region. The BTC pipeline and the Southern Gas Corridor linking directly the Caspian energy to Western energy markets were under Armenian constant threat. As noted by Hikmat Hajiyev, the Foreign Policy Advisor to the President, “Armenia fired cluster rocket to BTC pipeline in Yevlak region”. Fortunately, during the Second Karabakh War, Azerbaijan protected its strategic infrastructure, and there was no energy disruption. But attacks on critical energy infrastructure revealed that instability in the region would cause damages to the interests of many states.

In the end, Azerbaijan changed the energy map of the Caspian Sea by completing mega energy projects, as well as creating the milestone for energy cooperation in the Caspian region. After Azerbaijan’s victory in the Second Karabakh War, the country supports full regional economic integration by opening all transport and communication links. Now, the importance of the Caspian region became much more important, and Azerbaijan supports the idea of the exportation of natural gas from Turkmenistan and the Mediterranean via SGC. Such cooperation will further increase the geostrategic importance of the SGC, as well as Azerbaijan’s role as a transit country.

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The Silk Road of Gas: Energy Business from Central Asia to Europe

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Central Asia possesses a significant role within the global geopolitical balance since it comprises numerous trade channels that link many businesses with millions of target customers from China to Portugal and vice-versa. Withal, by having abundant hydrocarbon potentials, the region offers tremendous opportunities to the global and local players.

Throughout the recent period, the preponderance of the energy-based plans and policies triggered the emergence of mega projects in the region, such as the Southern Gas Corridor, Central Asia–China gas pipeline, TAPI, and a possible Trans-Caspian pipeline in the upcoming years. Albeit these intense investment activities are foreshadowing new regional perspectives for economic development, it also generates additional alternatives and realities for the European policymakers.

The new business in the traditional routes

Anciently, the region was home to the legendary Silk Road, which was shaping the vivid economic landscape of the planet. Today, the region’s erstwhile role in trade seems to be revitalized to some extent by the projects such as the Road and Belt Initiative. In contradistinction to the past, energy forms the backbone of modern trade in Central Asia despite some cardinal difficulties of marketing and transportation.

In the last decade, Turkmenistan, Kazakhstan, and Uzbekistan had some attempts to increase their presence in the sector via their involvement in Central Asia–China gas pipeline. Notwithstanding, none of them was able to establish a comprehensive framework of cooperation with the EU as Azerbaijan. Through its unique Southern Gas Corridor project, which enables the transfer of the natural gas from the Shah Deniz field of the Caspian Sea to South Europe, Azerbaijan had radically transformed the pipeline mappings at the Caspian region. Concomitantly this channel provides a tremendous chance to the other landlocked Central Asian countries to be able to meet the rising demand in the European market.

Europe’s apprehension

From the European Union perspective, energy can be categorized as a strategic sector since the European economy increasingly relies on international suppliers. Currently, 54% of the energy consumption within the EU is imported mainly from Russia. More specifically, in 2019, Russian stake in the EU’s natural gas import was 44%, and the dependency of EU countries on Russian gas in 2013 as follows: Estonia 100%, Finland 100%, Latvia 100%, Lithuania 100%, Slovakia 100%, Bulgaria 97%, Hungary 83%, Slovenia 72%, Greece 66%, Czech Republic 63%, Austria 62%, Poland 57%, and Germany 46%. These substantial factors are forming the backdrop of the EU’s diversification policy in the concerning field through the establishment of intense diplomatic and economic ties to ensure the sustainability of energy security.

During the anticipated turbulent periods, especially considering the latest exacerbation between Russia and the Western bloc over the Ukraine dispute, the European economy might inevitably face some severe hurdles. Since there is a possibility that the process might be accompanied by the risk of the blockage of the Russian gas by the transit countries.

The viable solution

Geopolitical escalations undoubtedly hasten the energy diversification process within the European Union. Therefore, the essence of the energy policy of the EU can be categorized as a combination of liberal and realist approaches. Although the union intends to achieve its economic goals via the market mechanisms, it also adopts a realist standpoint in International Relations, specifically in the energy context.

As stated by the British Petroleum data published in 2019, proved gas reserves of Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan totaled26,2 trillion cubic meters or 13,1% of the world’s known reserve. Undoubtedly, such an enormous potential would significantly contribute to the energy security of the EU.

Given the current situation in the European energy market and the global political climate, the EU cannot ignore its energy security concept, which is the fundamental aim of energy policy. In this sense, Southern Gas Corridor appears like the most convenient alternative by considering the future possibility of the construction of the Trans-Caspian pipeline that would dramatically facilitate the direct transfer of the Central Asian gas to South Europe.

As long as the EU is dependent on the imports of fossil fuels, the necessity of the balance in the energy sector will remain topical. Hence the formulation of a rational approach towards cooperation with potential suppliers, particularly key countries such as Azerbaijan, is essential. Otherwise, the energy notion will remain a risky and problematic political and economic instrument.

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