Syria Today | Matching Supply with Demand

In the midst of a crucial transition involving both economic and natural resource policies, Syria must find ways to meet a growing need for energy.

By Ziad Ayoub Arbache

The energy sector - oil, gas and electricity - has always been a strategic one. It represents a key factor in economic growth by directly producing around 20 percent of Syria's Gross Domestic Product (GDP), as well as indirectly contributing to the added-value in the sectors of agriculture, transport, and manufacturing. Indeed, oil revenues from the 1990s through 2005 were supposed to guarantee the implementation of an economic reform programme. The aim was to support the transition from a rentier economy – in which states rich in valuable natural resources largely depend and trade on these for income - to a diversified economy, in order to enable stable economic growth after the anticipated end of the "oil era".

In addition to the current political and social crisis which has been ongoing since March 2011, and which may considerably affect the country's economic performance for several years to come, Syria is still undergoing a transition through a critical period on several levels simultaneously. It has been continuously adapting to structural changes in the global economy, tackling the impact of trade liberalisation among regional economic blocs, facing increased competition, creating institutions to support the reform process and moving from a rentier economy based particularly on oil to a diversified economy based on human capital, knowledge and technology.

During the coming years, the energy sector will represent a key variable in whether this transition succeeds, and how likely it is that Syria will achieve the necessary economic growth rates. The central question is: how can the country satisfy an increasing energy demand and achieve a sustainable rate of economic growth? In other words, how can it provide the required energy supply and fulfill domestic consumption needs without depleting natural and financial resources?

Some countries are able to satisfy their energy needs through imports. However, Syria's available annual financial resources may not allow that, given that needs in other sectors such as public infrastructure, water, housing, education and health are not less important than those within the energy sector.

Energy demand is growing faster than the economy and the population. However, no new major oil reserves have been discovered since 1992 and a remarkable drop in oil production can be noticed, from 613,000 barrels per day (b/d) in 1996 to 380000 b/d in 2010. In addition, the Syrian energy sector is facing other challenges, such as lack of development in refining capacity, poor quality of petroleum products, and delays in developing gas reserves. Development is also lacking in the installed capacity of the electrical sector, where power stations already in service are approaching their full capacity. This is accompanied by high percentages of technical and commercial losses in power generation and distribution and weakness in energy intensity (i.e. the ratio between total energy consumption and the GDP). In addition, there is no clear policy to reduce subsidies on electricity, gas and oil prices in order to reach a balance between price and production cost. The absence of a coherent energy policy, along with serious environmental challenges, are other salient problems that Syria is facing.

However, despite the above-mentioned challenges, the energy sector has numerous strong points, such as the possibility of maintaining the current oil production level of 380,000 b/d by using secondary and tertiary recovery methods (e.g. Sweidiyeh) and the use of newly developed technologies such as 3D seismic and horizontal drilling. Moreover, the development of gas reserves in the central part of Syria should be finished before 2013. Syria could also generate additional revenue as a transit country for petroleum products sent between Gulf countries to the EU via Turkey or the Mediterranean Sea.

The potential energy savings can be estimated at roughly 15 percent of the current energy consumption, through demand side management (DSM). This means improving the efficiency of various end-uses through better housekeeping, correcting energy leakages and system conversion losses. It also involves developing and promoting energy efficient technologies, and managing demand through adopting soft options like higher prices during peak hours, concessional rates during off-peak hours, and interruptible and seasonal tariffs.

DSM also includes options such as renewable energy systems. This could be summarised as the principle of meeting energy needs by increasing efficiency instead of increasing energy production ("Nega-Watt instead of MegaWatt") through the use of available unlimited renewable energy sources, especially solar and wind energy. In fact, the average annual amount of solar energy that falls on 1m2 of the surface of Syria is equivalent to the energy content of 1 barrel of oil.

The growth rate of electricity demand is also expected to slow further, to 5.5 or 6 percent, due to further increases in electricity prices, and expected improvements in the efficiency of electrical production, distribution and consumption.

Nevertheless, the growth rate in the demand for electricity over the next 10 years will be higher than the population growth rate, and probably higher than the economic growth rate.

The guidelines for developing an improved future strategy are outlined in the "energy security approach": supply energy (petroleum and gas products, and electricity) from various resources at the lowest possible cost in order to achieve high economic growth rates via increasing the total production of this sector as well as its contribution to the added- value of other economic sectors.

Therefore, an ambitious, determined and comprehensive energy strategy is urgently required to keep up with high economic growth rates and to achieve and maintain self-sufficiency in the medium and long terms. This strategy should integrate strategic plans for the oil, gas, and electricity sectors and incorporate these into a clear vision of the future Syrian economy.

In order to do this, focus should be given to several priorities. Energy efficiency should be enhanced, and all types of energy losses (e. g technical and commercial) should be controlled and reduced. The small scale hydro-energy segment should be further developed, completing the exploitation of water resources to generate electricity. New and renewable energy sources (solar and wind) ought to be exploited, and oil recovery (EOR) techniques enhanced, along with the attraction of more international oil companies to marginal and complex fields. Gas projects in areas where resources were discovered several years ago must be implemented and the transport network completed. A new oil refinery should be built to satisfy domestic demand and to boost gains from value-added products.

Also, rational socio-economic pricing for oil products, as well as for gas and electricity, should be established with attention to the particular requirements of the Syrian economy. Finally, advanced nuclear power generation technologies should be introduced.

It must be realised that in order to achieve "energy efficiency", long-term energy policy should be integrated with long-term economic policy so as to ensure the rights of the future generations.

Ziad Ayoub Arbache has a Ph.D. in energy economics and is a lecturer in the Faculty of Economics at Damascus University.