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    Uzbekistan focuses on mid/downstream [NGW Magazine]

Summary

Famously landlocked by other landlocked countries, Uzbekistan is seeking to add value to its trapped gas and to save on imports of liquid fuels. [NGW Magazine Volume 4, Issue 10]

by: Dalga Khatinoglu, Ilham Shaban

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NGW News Alert, Featured Articles, Premium, NGW Magazine Articles, Volume 4, Issue 10, Import/Export, Investments, Political, Supply/Demand, Uzbekistan

Uzbekistan focuses on mid/downstream [NGW Magazine]

Uzbekistan plans to invest $33bn in its oil and gas sectors during 2019-2025, but the focus is mostly in the mid- and downstream sectors. Converting gas to value-added products as well as improving the grid, where a fifth of the country’s total production is lost, is where the country will direct its efforts, once it has achieved a modest rise in output in the coming few years.

State-run Uzbekneftegaz, which accounts for 70% of the gas production and 15% of its gross domestic product told NGW that over the last year, investments in this sector totaled $2.3bn and almost half, $952.5mn, came from overseas. It expects to see investments this year rise to $2.6bn, of which about $1bn will be from abroad.

Uzbekistan attracted a total $2.6bn in foreign direct investment (FDI) last year, so the share of foreign investment in the oil and gas sector is significant. For the current year, the country expects to receive $4.1bn FDI in all economic spheres.

Two major downstream projects are the expansion of the Shurtan gas-to-petrochemicals plant, as well as its gas-to-liquids plant (GTL) . The two projects have a combined demand of 7.5bn m³/yr and will be operational next year.

Uzbek energy minister Alisher Sultanov told NGW on the sidelines of the 23rd international exhibition and conference "Oil and Gas of Uzbekistan”, held in Tashkent on May 15 that the GTL plant will cost $3.6bn and will be ready by end-2020. Of the overall cost, $2.3bn has already absorbed from various financial sources. “We import 1mn mt/yr of liquid fuels,” he said. “The GTL plant will allow us to end that. We have the Shurtan expansion and methane to olefins (MTO) plant project as well.”

The group of investors includes Uzkimyosanoat, Air Products & Chemicals, Uzbekneftegaz and Singaporean Enter Engineering signed a contract May 20 to construct the MTO, which is designed to convert 1.5bn m3/yr of gas into a range of petrochemicals.

The Shurtan expansion is aimed at producing 505,000  metric tons/yr of products, including 280,000 mt/yr of polyethylene and 100,000 mt/yr polypropylene.

The expansion of Shurtan  will cost $1.765bn and got under way in November 2017. Uzbekneftegaz will invest $350mn of its own money and the rest of the financing will come from Gazprombank, Credit Suisse, Mitsubishi UFJ Financial Group and China Development Bank.

Enter Engineering has been developing the plant under a technology licence from Chevron and CB&I Lummus. The plant is due to be complete in the fourth quarter of 2020.

Uzbek gas production grew by just 6.1% last year to total 59.84bn m³, the central Asian republic's state statistics committee said January 16. The gain fell far short of the planned 16.8%. However, Sultanov said the volume would reach 63.6bn m3 in 2019 and 73bn m3 in 2021. Most of that output growth would be directed at the two Shurtan plants.

For the next years, the focus would be on maintaining the production level and improving the grid, where a fifth of total production is currently lost.

Sultanov also said that about 90% of power generation in the country comes from gas. “In 2020s, GDP is expected to grow constantly at a high rate and the domestic energy demand will increase. For instance, we expect electricity demand to grow from 62.8 TWh in 2018 to 110 TWh by 2030.”

Uzbekistan and Russian Rosatom have signed a contract to build a 2.4-GW nuclear power plant which is projected to become operational by 2028. The plant would release another 3.7bn m³/yr of gas for local industry and households.

Sultanov said about 30% of the gas produced is used in the residential sector. The country has raised gas prices for domestic market five times since 2014 with a further increase due mid-2019 in order to dampen demand and save on subsidies.

According to the International Energy Agency, Uzbekistan's subsidies totalled $3.8bn for gas (up 4.9% year on year) and $1.3bn for electricity (up 52%) in 2017, together representing 12% of GDP.

The country has planned to increase gas and electricity prices for domestic consumers by 12% from June 1. But the prices are still a long way below international markets: soum 350/ m³ or about $41/”000 m³.

Russian private producer Lukoil produced 13.42bn m3 last year and Gazprom also produced 0.4bn m3 in 2018, but the situation for Uzbekistan is very tough  . Lukoil claimed in March that Uzbekistan had racked up $600mn in debt in 2018, as it took more than its share of gas for the local market.

Lukoil’s share of production from Uzbekistan is likely to grow to 14.5bn m3 this year, of which the Russian company plans to deliver 5bn m³ to local customers. The rest will be sent to China and Russia.

Since 2004, Lukoil has spent $8bn in Uzbekistan. Its CEO Vagit Alekperov said April 25 that the company plans to invest $2bn in its Uzbek gas projects to boost production to 18bn m3/yr by 2020.

Uzbekistan also plans to expand the upstream activities, but mostly it is aiming at maintaining the production level rather than growth.

Recently, UK major BP, state-run Azeri Socar and state Uzbekneftegaz sealed an agreement to jointly study the prospects for the exploration and development of a number of blocks including Uzbek part of the Aral Sea, Sam-Kosbulak and the Baiterek investment blocks of the Ustyurt region.

Separately, Socar subsidiary Nipi Neftegas signed an agreement with state-run Uzbekneftegaz to increase hydrocarbon production at the country’s West Tashli, East Tashli, North Shurtan and Garmiston fields, using advanced methods and technologies from Socar, the Uzbek company announced May 19. 

Uzbekistan exported 8bn m3 to China, 0.5bn m3 to neighboring countries and about 7bn m3 to Russia in 2018 (including Lukoil and Gazprom’s share). The country planned to increase China exports to 9bn m3 in 2019.

“We also plan to transit 40bn m3 of Turkmen gas to Russia (3bn m3) and China (36-37bn m3) and deliver 1bn m3 to Kazakhstan’s southern regions,” Sultanov said. However, an official told NGW anonymously that the country’s revenues from gas transit is very low, without mentioning any figure.