Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
In an article written for cabar.asia, Rovshan Ibrahimov, an expert in the field of energy
diplomacy, analyzes the fuel and energy complex of Uzbekistan and Uzbek gas export
markets.
Uzbekistan, as well as two other former Soviet republics located in Central Asia –
Kazakhstan and Turkmenistan, has rich hydrocarbon resources. As in the case with its
neighbors, this is a determining factor in the development of the country.
The presence of oil and gas deposits is a panacea for any country for
resolving economic problems and even for achieving its political goals.
Uzbekistan is no exception. After gaining independence in 1991, the
country began to actively look for ways to increase production of their
natural resources and for the markets to sell them. Natural gas, along
with cotton, is a brand of the country. Oil plays a lesser role. According to
the confirmed data of official Tashkent, potential oil resources in the country amount to
more than 5.3 billion tonnes, gas condensate – 480 million tonnes, natural gas – about 5
billion cubic meters. Oil and natural gas are produced in the country in five oil and gas
fields: “Ustyurt“, “Bukhara-Khivi“, “Southwestern Hissar“, “Surkhandarya” and “Ferghana“.
Over the entire period of exploration works in Uzbekistan, there have been discovered 246
oil and gas fields. Consumption of energy resources is also high in Uzbekistan. The Uzbek
economy is quite energy-intensive; the country is ranked the 10th in the consumption of gas
in the world.
In the oil and gas industry of Uzbekistan constitute about 16% of GDP, and its share in the
revenue part of the budget is more than 20%.
HISTORY OF UZBEK OIL AND GAS INDUSTRY
The first wells on the territory of Uzbekistan were drilled as early as in 1880 in the
Ferghana region.
It is known that oil had been already extracted and processed into kerosene in the Shorsu
area near Kokand in 1885. The kerosene was then brought to large
cities such as Tashkent, Andijan and Kokand on carts and camels. The residual oil was used
as fuel on the railroad “Tashkent – Kokand.”
At the beginning of the 20th century, there was discovered a deposit “Chimion” in
Uzbekistan, and the first oil-extracting enterprise in the territory of Turkestan region was
created on “Chimion”. The construction of an oil refinery plant was completed, too.
Subsequently, Nobel Brothers bought the field and the plant. Before the revolution, oil
production was also started in other fields. An important event was the commissioning of
the pipeline “Chimion – Vannovskaya” in 1908.
Revolution and civil war in Russia suspended the development of crude oil in the region.
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
After the establishment of Soviet power, industries were nationalized, and a public trust
“Uzbekneft” was established. In 1925, “Uzbekneft” turned for help to the Azerbaijani oil
industry association “Azneft“, and oil specialists from Baku came to Uzbekistan.
In the following years, new deposits had been discovered and developed. Oil production
began to increase in Uzbekistan. Search for promising deposits took place in the BukharaKhiva region and Surkhandarya. In the new regions, there were opened deposits of
“Nefteabad“, “Changyrtash“, “Kokaidy“, “Lyalmikar“, gas deposits of “Karaiz“, “South
Alamyshik“, “Uchkyzyl“, “Kakaydy“. Of great importance in terms of approval of oil and gas
industry in Uzbekistan was the discovery of “Haudag” deposit in 1934. In 1944, there was
commissioned the first gas pipeline “Oilfield Andijan – city of Andijan“, thanks to which
there started the gasification of settlements in Uzbekistan.
In 1953, in the Bukhara region, there was discovered the first natural gas field –
“Setalantepe“. This event played a major role in the future development of Uzbekistan, in
general, and began the formation of the gas industry in Uzbekistan, in particular. In
subsequent years, there were discovered other gas fields here – “Tashkuduk“, “Ki-Merek“,
“Yangikazgan“, “Uchkyr.” Thus, there was formed the Bukhara-Khiva oil and gas region.
An important event occurred in 1956, when an oil and gas field of “Gazly” was discovered in
Romitan district of Bukhara-Khiva oil and gas region of Uzbekistan, with reserves of 500
billion cubic meters. Thus, Uzbekistan turned into a producer of natural gas. Natural gas
from this field is delivered to industrial facilities of the Urals and the European part of the
Soviet Union. To transport the gas, “Bukhara – Ural” pipeline was built.
In subsequent years, new oil and gas fields were discovered in the republic. In 1985, there
was discovered a large oil and gas field of “Kokdumalak“, located on the border with
Turkmenistan. This field is very important for the gas sector of Uzbekistan. Up to 70% of oil
reserves in the country are in this deposit. After gaining independence, Uzbekistan and
Turkmenistan signed an agreement in 1997, under which a part of the oil produced at the
field had to be delivered free to the Seidi oil refinery in Turkmenistan up until 2012. The
extractable reserves are estimated at 54.3 million tonnes of oil, 67.4 million tonnes of
condensate and 128 billion cubic meters of natural gas.
In general, the oil fields were explored in the autonomous republic of Karakalpakstan,
Kashkadarya, Bukhara, Surkhandarya, Namangan, Andijan and Ferghana regions. The bulk
of oil reserves are concentrated in the Kashkadarya region.
An important event for the fuel and energy complex of Uzbekistan was the beginning of the
operation of Mubarek Gas Processing Plant in Kashkadarya region in 1972, which, at that
time, was one of the largest in the world. The commissioning of this enterprise was the
beginning of gas processing in Uzbekistan. Another major gas processing plant was built in
Shurtan in 1980.
Development of the oil and gas sector of Uzbekistan after independence
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
An interesting development of the energy sector was observed after Uzbekistan gained
independence. Unlike other post-Soviet states of Central Asia, whose economies are based
on oil and gas extraction, Uzbekistan managed to avoid recession rates of oil and gas
extraction. Moreover, during the period from 1991 to 1998, production of oil and
condensate increased from 2.8 million tonnes to the peak level of 8.2 million in 1998. The
main production of oil and gas condensate was ensured by the exploitation of “Kokdumalak”
deposit.
However, the increase in production was achieved at great cost. Improper use has led to the
depletion of already limited reserves. In addition, it is worth noting that oil production in the
country is negligible. After that, there was a recession whose culmination was in 2001. At
that time, the average production was about 3.5 million tonnes of oil and condensate per
year, including the gas condensate. However, in subsequent years, again in contrast to
other former republics of the Soviet Union, there was a decline in oil and gas production in
Uzbekistan. And this trend is irreversible. Oil and natural gas reserves are getting depleted.
In 2012, there was produced 1.57 million tonnes of oil, the rest was the condensate. In
2013, there was produced even less – only 2.9 million tonnes. At the same time, oil
production continues to decline. Total reserves of proven oil reserves in Uzbekistan is about
530 million tonnes. However, even these relatively modest reserves are located in the
depths of around 100 oil, gas and gas condensate fields. This complicates the process of
their extraction. According to the Uzbek authorities, oil reserves will suffice for the next 20
years. The produced oil is not even enough to meet the needs of the country. Uzbekistan is
only half self-sufficient in oil, despite the fact that having a relatively large population –
about 30 million people, the annual consumption of oil in the country is very modest, and in
2013, it was only 3.9 million tonnes. The difference between the produced and consumed oil
was imported. At the same time, imports of oil are growing every year.
A somewhat different picture can be seen in the sector of natural gas. In 2014, Uzbekistan
was in 15th place in the world in production of natural gas, having produced approximately
57.3 billion cubic meters of gas. There is a drop in the production of natural gas, too. For
example, gas production in 2012 amounted to about 63 billion cubic meters. In addition,
there were produced 273.6 ths. tonnes of liquefied gas. In 2013, the country produced 55.2
billion cubic meters of natural gas. Gas is mainly produced in the areas of “Gazli” and
“Kashli“. However, the figures from different sources may differ because official statistics
on oil, gas condensate and natural gas in Uzbekistan are not published. It is estimated that
reserves of natural gas in Uzbekistan will suffice for the next 25-30 years.
Uzbekistan is trying to increase the production of oil and gas, or at least to prevent its
decline. One solution to this problem is to invite foreign energy companies that have greater
financial resources and advanced technology in the exploration and development. This
process has continued since the beginning of the 2000s.
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
To this end, the legislation of the republic has been improved, significant tax benefits for
foreign investors have been provided. In December 2001, there was adopted the Law “On
Production Sharing Agreements“; in 2002, there was adopted the new version of the Law
“On Mineral Resources“.
As a result, a number of foreign companies such as Russia’s Gazprom, Lukoil, BritishCanadian company Tethys Petroleum (in 2014, the company left Uzbekistan), China’s CNPC
were involved to participate in the projects in the country. These and other companies are
involved in oil and gas production, and in the formation of the productive capacity of the
fuel and energy complex.
In addition to attracting foreign investors, Tashkent also sees a way out of the situation in
the development of unconventional hydrocarbons. Thus, the exploitation of oil shale has
been widely discussed in the country. In 2013, the state company “Uzbekneftegaz” has
started drilling at the field “Sangruntau” in Navoi region with reserves of 357 million
tonnes. The company hopes to increase oil production by 1 million tonnes per year using
this deposit. Total reserves of oil shale in Uzbekistan are estimated at 47 billion tonnes, they
are located at a relatively shallow depth of 600 meters. Experts consider more than 60% of
the territory of Uzbekistan promising for the production of oil shale. At the moment,
Uzbekistan is planning to independently develop this area.
It should be noted that the processing of one tonne of oil shale produces from 110 to 250 kg
of liquid hydrocarbon fuel and up to 40 kg of gas. Deposits of oil shale are located in such
fields as “Urtabulak“, “Baysun“, “Djam“, “Kulbeshkak“, “Aktau“, “Sangruntau“, “Uchkyr“.
The main deposits of oil shale are located in the Kyzylkum desert and mountains of Baysun.
FUEL AND ENERGY COMPLEX OF UZBEKISTAN
State industrial enterprises
In order to develop its subsoil for the extraction of oil and gas, a public corporation of oil
and gas industry “Uzbekneftegaz” was created in Uzbekistan in 1992. In December 1998, on
the basis of this corporation, there was created the National Holding Company
“Uzbekneftegaz” with a three-level vertically integrated management system. This company
is a major producer of oil and gas in the country, as well as a partner in a consortium with
foreign companies.
“Uzbekneftegaz” is the monopoly operator of oil and gas sector of Uzbekistan’s economy
and unites six joint stock companies:
1) “Uzgeoburneftegaz” carries out exploration activities, production drilling of oil and gas
wells;
2) “Uzneftegazdobycha” specializes in the development of oil and gas fields, production of
oil, gas and gas condensate, and natural gas processing;
3) “Uztransgaz” implements the transportation and underground gas storage, management
of facilities transporting natural gas;
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
4) “Uzneftegazstroyinvest” carries out project works, capital construction and improvement
of gas production, transportation and processing of oil and gas;
5) “Uzneftegazmash” produces engineering products for businesses and organizations of oil
and gas and gas chemical complexes;
6) ‘Uznefteproduct “includes several oil refineries, which operate on the territory of
Uzbekistan: Alty–Aryk refinery, Ferghana and Bukhara oil refineries.
Oil refining
The oldest company in this area is Alty-Aryk refinery, which was created in 1906 and was
known as Vannovsky refinery. The total annual processing capacity of this fuel-oil plant is
about 3.2 million tonnes of oil. The plant is a branch of the larger Ferghana refinery.
In turn, the Ferghana refinery was built in 1959. It should be noted that the main problem in
the processing of oil and gas in Uzbekistan is high sulfur content. In 1995, the factory
moved to the processing of local raw materials with a high content of sulfur compounds, and
it was necessary to maintain the range and quality of products in order to compete in the
global market. In this regard, the Japanese company “Mitsui” and “Toyo Engineering”
reconstructed the plant. Thanks to the renewal of the plant, the sulfur content in oil
products was reduced. Sulfur itself is also in demand in the market. The plant produces
about 60 types of oil products. The design capacity of the plant for processing is 5.5 million
tonnes per year. In 1998, the Ferghana refinery created a joint venture with Texaco Holding
Incorporated company for the production of high-quality lubricants.
As for Bukhara refinery, it was built after Uzbekistan gained independence, in 1997, by a
consortium led by the French company TECHNIP, when the country experienced the growth
of oil production during the rise of production at the field “Kokdumalak.” This company
produces 10 kinds of products: high-grade gasoline, diesel fuel and jet fuel. The design
capacity of the plant is 2.5 tonnes of gas condensate per year.
It should be noted that these companies are unprofitable. This is primarily due to the fact
that all the refineries cannot operate at full capacity, because of the shortage of raw
materials. Thus, in 2013, the total amount of the net loss of the Ferghana refinery was 224.5
billion Uzbekistani soms (104.4 million dollars), of Bukhara Oil Refinery – 226.8 billion
Uzbekistani soms (105.4 million dollars). Load level of Ferghana refinery in 2013 was only
25.9%. Bukhara refinery has a better situation – its utilization was 64.4%. In this regard, the
Uzbek government is conducting a series of measures to rehabilitate these loss-making
enterprises.
Despite the lack of raw materials for these enterprises, in 2005, when the oil crisis had
become clear, “Uzbekneftegaz“, in partnership with a St. Petersburg company
“Petromaruz“, launched Dzharkurgan refinery in Surkhandarya region. Compared with the
above three refineries, this refinery is relatively small and is capable of processing up to 130
thousand tonnes per year and produce gasoline, paraffin and asphalt. The raw materials for
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
this plant are hydrocarbons from deposits of “Kakaydy“, “Lalmikor“, “Mirshodi“, “Uchkizil“,
“Hovdak“, located on the territory of Surkhandarya region.
Natural gas processing
One of the companies for gas processing, as already mentioned above is the Mubarek Gas
Processing Plant (GPP). Mubarek Gas Processing Plant is a subsidiary of JSC
“Uzneftegazdobycha” and is one of the largest companies of this profile in the world. At
present, the production capacity is 30 billion cubic meters of natural gas and more than 570
thousand tonnes of gas condensate per year. Apart from the gas condensate, the plant also
produces liquefied petroleum gas and sulfur.
Another gas processing plant in the territory of Uzbekistan is the Shurtan gas processing
plant. The annual capacity of this plant is 20 billion cubic meters of gas. The plant has four
installations of propane-butane mixture. The plant is capable of producing 104 thousand
tonnes of liquefied gas with division by 56 thousand tonnes of propane, 48 thousand tonnes
of butane and 44 thousand tonnes of stable gas gasoline.
Next, let’s consider the Shurtan Gas Chemical Complex. This company processes natural
gas with the production of ethylene, co-monomer and polyethylene. More than 60% of
produced polyethylene is exported.
In accordance with the course of in-depth processing of raw materials, Uzbekistan jointly
with a consortium of Korean companies is implementing a project for the construction of the
largest in Central Asia Ustyurt Gas Chemical Complex based on “Surgil” deposit. The design
capacity of the enterprise will allow to process 4 billion cubic meters of natural gas for the
production of 362 thousand tonnes of polyethylene and 83 thousand tonnes of polypropylene
and 100 thousand tonnes of pyrolysis gasoline.
In addition, in 2009, “Uzbekneftegaz” in partnership with the South African company
“Sasol” and Malaysian Petronas is promoting a project to build on the basis of Shurtan Gas
Chemical Complex an installation with processing capacity of 3.5 billion cubic meters, which
will produce 672 thousand tonnes of diesel fuel, 278 thousand tonnes of jet fuel, 361
thousand tonnes of naphtha and 63 thousand tonnes of liquefied gas per year. This plant can
become a leader in the global energy market for the production of high-quality fuel and
other products.
Another project is implemented by the South Korean Hyundai Engineering & Construction,
which is engaged in the construction of the technological part of the plant to produce
synthetic fuel in the Kashkadarya region in southern Uzbekistan. The plant will process 3.5
billion cubic meters of gas and produce 864 thousand tonnes of diesel fuel, 304 thousand
tonnes of jet fuel, 395 thousand tonnes of naphtha and 11.2 thous. tonnes of liquefied gas
per year. Completion is scheduled for August 2017.
Natural gas exports
General provisions
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
Uzbekistan, in contrast to other countries of the former Soviet Union with energy resources,
does not export, but imports oil, because its own production is not enough. In addition,
crude oil exports from the country is prohibited on the official level. Oil transportation into
Uzbekistan is carried out using a pipeline “Kumkol-Shymkent-Bukhara”, “Shymkent-Pahta”
and by rail.
Since there are no free volumes of crude oil in Uzbekistan, the country specializes in
exporting natural gas. At the same time, despite the fact that Uzbekistan is on the third
place in the production of natural gas among the former Soviet republics after Russia and
Turkmenistan, gas exports from this country is relatively low. The reason for this lies in the
fact that there is large domestic gas consumption in Uzbekistan. In short, according to the
statistical review of BP, in 2014, Uzbekistan produced 57.3 billion cubic meters, while the
consumption amounted to 48.8 billion cubic meters. For a country with a population of
about 30 million people and a GDP of $ 59.7 billion, such consumption says about inefficient
use of gas. Overall, Uzbekistan is no exception. It is well known that countries with energy
resources, as a rule, use them less efficiently than those who are forced to import them.
Uzbekistan carries out measures to increase the efficiency of natural gas consumption in the
country, but this process is very slow. One of these measures is a gradual increase in gas
prices for consumers in Uzbekistan. With the rise in price of gas, its consumption is less
wasteful. In addition, there was adopted a program of energy and gas saving up to 2020,
when the annual consumption of natural gas by sectors of the economy in 2020 should be
reduced by 5-7% compared with the level in 2013, and the consumption by the population
will remain almost at the level of 2013. According to calculations, the annual export of
natural gas will increase by 20% by 2020.
In short, the free volumes that Uzbekistan could export in 2014 amounted to 8.9 billion
cubic meters. Uzbekistan exports its natural gas to Russia, Kazakhstan, Kyrgyzstan,
Tajikistan and China. The main partners of Uzbekistan are Russia and China. Russia is the
main importer of Uzbek gas, but the trend is that the volume of supply is getting low, mainly
due to the decrease in natural gas production in Uzbekistan. So, in 2013, Uzbekistan
supplied to “Gazprom” only 5.65 billion cubic meters instead of the negotiated earlier 7.5
billion cubic meters of gas. For comparison, in 2009, Uzbekistan delivered 15.4 billion cubic
meters to Russia. As for China, this country received 6 billion cubic meters of Uzbek gas in
2013. Consumption of Uzbek gas in the other importing countries is insignificant.
Uzbek gas export markets – is there room for maneuver?
Uzbekistan has no access to the open seas. Moreover, its geographical location is unique,
because its neighboring countries have no access to the open seas either. Besides
Uzbekistan, only Liechtenstein has such a feature. This means that the total length of gas
pipelines in Uzbekistan, which pass through the territory of several countries, is quite large.
It exceeds 13 thousand km. The capacity of the gas transportation system of Uzbekistan is
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
55 billion cubic meters per year, which allows pumping transit from Turkmenistan and
supplying Uzbek gas for export. In the north-west of the country, there are some parts of the
trans-regional gas transport systems “Central Asia-Center” and “Bukhara-Ural“.
Central Asia and the domestic market
The pipeline “Central Asia-Center” was built in 1967 to transport natural gas within the
Soviet Union. This pipeline passing through the territory of Turkmenistan, Uzbekistan,
Kazakhstan and Russia, turned into an international transport corridor in 1991. The current
capacity of the pipeline is 40-50 billion cubic meters. The transit of Turkmen gas to Russia is
also carried out through this pipeline. The pipeline needs renovation and expansion of
capacity.
In 2002, there was completed a gas pipeline “Gazli–Kagan” with length of 67 km which
connected the Ustyurt and Bukhara-Khiva oil and gas regions with export communications –
gas pipelines “Central Asia-Center” and “Bukhara-Ural“.
Natural gas supplies to Tajikistan are carried out through the pipeline system “Kalif –
Dushanbe“, which is partially filled with Turkmen gas, too, as well as through a gas pipeline
“Shurtan–Sherabad” with length of 193 km, built in 2003. The pipeline helped abandon the
idea of transit of Uzbek gas through Turkmenistan and meet the needs of population and
industry in the south of Uzbekistan. The pipeline’s capacity is small – about 1 billion cubic
meters per year. To Tajikistan, the gas is supplied on a reimbursable basis through the use
of a transit pipeline in the Leninabad region.
Russia
As for the gas pipeline “Bukhara–Ural“, this major pipeline starts at the deposit of “Gazli”
and has length of 4464 km. The pipeline was built in 1966 to transport natural gas to the
industrial regions of the Urals: Magnitogorsk, Chelyabinsk, Sverdlovsk, Nizhny Tagil, Orsk.
To date, this pipeline is very old, used effectively and in need of renovation. The pipeline is
used only on its Uzbek, Turkmen and partially Kazakh sites.
China
Another export route for Uzbek gas is a gas pipeline “Central Asia-China.” The pipeline
starts at the border between Turkmenistan and Uzbekistan, transit passes through
Uzbekistan and Kazakhstan, and ends at the Chinese border crossing point of Horgos. The
length of the gas pipeline on the territory of Turkmenistan is 188 km, Uzbekistan – 525 km,
Kazakhstan – 1293 km, and China – more than 4.86 thousand km. Currently, there have
been built three branches, and the construction of the fourth branch is expected –
Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China. China will finance the construction
of the pipeline.
CONCLUSIONS
The main problem of the oil and gas sector of Uzbekistan is a sharp decline in oil and gas
production. This trend will continue in the coming years. In this context, “Uzbekneftegaz”
Rovshan Ibrahimov: The current situation and future of the oil and
gas sector in Uzbekistan
has developed a program of development of the oil and gas industry of Uzbekistan up until
2020. The program provides for an increase in growth of hydrocarbon reserves in the years
of 2014-2020. In short, the increase in reserves of natural gas is expected to reach 485.5
billion cubic meters, and oil and gas condensate – 41.7 million tonnes. The company expects
that the annual natural gas production in 2020 will increase to 66 billion cubic meters, and
oil and gas condensate – up to 3.5 million tonnes. Thus, Uzbekistan hopes to extend the
viability of this sector of the economy, whose return exceeds 130 years.
Rovshan Ibrahimov, an expert in the field of energy diplomacy, Dr. at Hankuk
University of Foreign Studies (South Korea)
The views of the author do not necessarily represent the views of cabar.asia
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