ISIL s Exploitation of Energy Assets in the Levant

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1 ISIL s Exploitation of Energy Assets in the Levant Daniel P. Ahn April 2015 The information contained herein are based on sources considered reliable but its accuracy and completeness are not guaranteed. Neither the Department of State nor the U.S. Government assumes any legal liability for the information disclosed herein. The analysis is believed to be accurate to the best of our knowledge, but the opacity and dynamic nature of the subject material means they are nevertheless subject to change and reassessment. ENR requests that recipients limit distribution without prior notification. 1

2 Key Points - Oil forms a major source of value and revenue to the Islamic State of Iraq and the Levant (ISIL). Analysis suggests ISIL controls about 40 thousand barrels a day (kb/d) of oil production. - Some is consumed internally and the remainder is sold to a complex network of middlemen for further distribution to regional markets (mainly to Turkey), providing ISIL with $500k+ a day in revenues. - In addition to providing a source of revenue, ISIL uses energy resources as points of political and economic leverage regardless of the supply-demand dynamics within ISILheld territory. - ISIL is highly adaptable as shown by its response to coalition airstrikes on energy infrastructure and increased border security measures in the region. - Distribution is not the same as production. Although though coalition airstrikes have frustrated ISIL s ability to get refined products to market, oil production and refining persists albeit using rudimentary methods. - ISIL is looking to expand and could target energy infrastructure in other countries with disaffected populations. 2

3 ISIL Value Chain $ Oil Extraction Refining $ $ $ Militant Operations Crude Smuggling Product Smuggling Domestic Market - Equipment - Parts - Supplies - Expertise $ $ Finance Stability/Influence 3

4 ISIL Oil Flow Diagram UPSTREAM Syrian Kurdish NE Syria Fields Syrian Fields: 40 kb/d Iraqi Fields: 1kb/d Assad Regime Trucking Internal Pipelines ISIL controls part of pipeline Crude Smuggling Refining ISIL operates some mid- and downstream assets MIDSTREAM Product Smuggling Internal Use Regional Trucking Capacity Makeshift Pipelines Other: Mules, Rafts Reverse Smuggling: Product, Equipment Limit of Direct ISIL control DOWNSTREAM Regional Markets: Turkey, Iran, Syria, KRG International Markets Crude sold at ~$10-30/bbl Source: Media sources, ENR/OCE analyst estimates Arbitrage of ~$20-80/bbl by middlemen Products sold at ~$50-90/bbl 4

5 ISIL Oil Production Qayara Field Heart of ISIL Production Recaptured from ISIL Source: Various media sources, ENR/OCE analyst estimates 5

6 Established Distribution Networks Source: Media sources. 6

7 Established Distribution Networks Source: Media sources. 7

8 Established Distribution Networks Source: Media sources. 8

9 Established Distribution Networks Source: Media sources. 9

10 ISIL Downstream Modular Refineries Imported into Syria Modular Refineries Sold Online FOB Price: US $110,000 Origin: Henan, China Capacity: bbl/d Source: Syriadirect.org, 10

11 Coalition Counter Measures Jeribe Modular Refinery Gbiebe Modular Refinery Coalition airstrikes on over 200 ISILcontrolled energy assets, including: 24 Modular refineries 2 oil storage facilities 17 oil collection points Plus, other oil infrastructure (storage, derricks, pipelines, drilling rigs, generators, etc.) State Department outreach informs private sector of possible end-users in ISIL territory: Refining sector replacement parts and equipment Oil production and transportation supplies Source: DoD, Media sources, ENR analyst estimates 11

12 New Downstream Realities: ISIL Pit-Refineries Source: Media (Syrian Kurdish territory), Commercial Satellite (ISIL territory) 12

13 New Downstream Realities: ISIL Pit-Refineries Source: Commercial Satellite 13

14 New Downstream Realities: Basic ISIL Refineries Capacity: bpd Yield: Naphtha, Diesel, Kerosene, and HFO Time: 3-5 hours a batch No heat controls rely on Braille method to detect lubricity and separate yields Source: Kirkuk Now 14

15 Refinery Yields ¼ Wasted or Burned Diesel: $0.50-$0.70 / liter Kerosene: $0.60-$0.90 / liter Naphtha and HFO blended? Asphalt HFO Diesel Kerosene Naphtha 20% 35% 20% 10% 15% Waste / Burned Sold as Diesel Blended with other Products Conversions: 1 Barrel = 159 Liters Source: Syrian Economic Forum, Analyst Estimates, Diplomatic Reporting 15

16 Consumption Patterns 135,000 bpd Consumption in perfect world. Operational Demand < 1,500 bpd Estimated for ISIL Held Territory: Population: 6-7 Million Iraq: Syria: Consumption: 35,000 bpd Local demand persists at a lower level. 20,000-50,000 bpd Crude Production: 41,000 bpd Iraq: 1,000 bpd Syria: 40,000 bpd Sources: DoD, EIA statistics, ENR/OCE analyst estimates 16

17 ISIL s Operational Demand Not all vehicles are made equal. To the degree ISIL maintains vehicles requiring cleaning burning fuel, that fuel must be imported into ISIL territory. Which vehicles can remain operable with poor quality fuel from pit refineries or stills? Which cannot? Tanks: T-54/55, T-72 Artillery Armored Fighting Vehicles Sources: The International Institute for Strategic Studies Military Balance 2015, Media 17

18 Total Value of ISIL Oil Oil assets provide ISIL with WEALTH and POWER. 1. Finance: ISIL realizes financial gains at multiple points throughout the oil value chain: Crude oil sold at the well head ($10-$30/barrel) Tolling various points of the distribution network (e.g. checkpoints) Sale of crude to refineries in exchange for product at below market prices Sale of refined product (e.g. diesel) to the local population Mitigates the need for higher-cost imports 2. Influence: Enables governance and social subsidies: Ensures a minimum standard of living and placates a population that might otherwise rise up 1. Military: Sustains operations of its combatant focused forces and equipment. 18

19 ISIL Expansion and Energy Risks Daniel P. Ahn April 2015 The information contained herein are based on sources considered reliable but its accuracy and completeness are not guaranteed. Neither the Department of State nor the U.S. Government assumes any legal liability for the information disclosed herein. The analysis is believed to be accurate to the best of our knowledge, but the opacity and dynamic nature of the subject material means they are nevertheless subject to change and reassessment. ENR requests that recipients limit distribution without prior notification. 19

20 ISIL Caliphate? Source: BBC 20

21 Conceptual Framework: ISIL Control Over Energy Assets Phase 1 Phase 2 Phase 3 Phase 4 Ideology and oil success stories percolate into other areas with an ISIL presence. Planning for attacks on energy infrastructure may begin to materialize. Conceptualizing High profile attacks against energy infrastructure and fields. Render oil assets unusable to government, foreign companies, and other adversaries. Reinforce its reach and promote its brand. Disrupting & Positioning Step-by-step control and occupation of oil field, other energy assets. Consolidate tribal and militia support in area of operation. Exploit existing smuggling routes. Fuel localized operations. Operations & Control Formalize hierarchy charged with maximizing returns from oil fields and other energy resources. Derive revenues from oil sales at the wellhead, by tolling smugglers, and from the sale of refined product. Source: Media and industry sources, DOE, Diplomatic reporting, ENR analyst estimates Governance & Sustained Control 21

22 ISIL in Libya Libya: ISIL is present in Libya and maintains limited control of certain cities in the country. Infighting between rival government factions has increased the vulnerability of Libyan oil fields and associated infrastructure. However, geographic, tribal, and regional demand dynamics along with the vertically integrated nature of energy infrastructure in Libya serve as barriers to replicating the level of control and exploitation over oil assets displayed in Syria. Source: Media and industry sources, ENR analyst estimates 22

23 ISIL in Libya Libya: ISIL s ability to monetize or otherwise profit from oil resources in Libya is unlikely to follow the traditional vertically integrated fieldto-pipeline-to-port model. ISIL lacks the ability to tap Libya s present rate of production of 450 thousand barrels per day (bpd) much less the full conflict-free potential of over 1.5 million bpd. Libya Oil Production 2008-Present (Millions of barrels per day) Source: DOE, Media sources, ENR analyst estimates 23

24 Libyan Oil & Gas Infrastructure Location of ISIL oil field attacks Source: Petroleum Economist, Energy Aspects (March 18, 2015) 24

25 Nigeria: ISIL and Boko Haram Boko Haram operates with autonomy and is not under ISIL operational control. Boko Haram s area of control is in the northeastern corner of Nigeria. The oil fields and energy infrastructure are along the coast and Niger River delta. Oil theft, smuggling, and piracy are not currently a source of financing for Boko Haram. Source: State Department analysis, Media, World Energy Atlas 25

26 Energy Infrastructure in Yemen Houthi Control or Influence Al-Qaeda in the Arabian Peninsula Yemen s most important energy infrastructure, including a major refinery, is located east of Sana a. The eastern Marib complex has been bypassed by the Houthis and remains under tribal control (as do the large Masila Basin oil fields, which are far to the east of current fighting). Yemen s other major refinery is located in Aden. Source: Industry, Media 26