Uzbekistan has significant oil and gas reserves (currently, Uzbekistan is the world's eighth largest natural gas producer). Although the country's oil and gas production has increased in the past decade, Uzbekistan's export potential is hindered by a lack of export routes from landlocked Central Asia. Information contained in this report is the best available as of March 2001 and is subject to change.
Uzbekistan has experienced economic difficulties similar to those that have affected most of the Commonwealth of Independent States (CIS), including loss of markets and subsidies from the Soviet Union; major disruptions in inter-republican trade and payments; hyperinflation; corruption; and declining output. Following independence in December 1991, the government sought to prop up its Soviet-style command economy with subsidies and tight controls on production and prices.
Uzbekistan's gradualist reform strategy, while helping the country to avoid the dramatic economic contraction and drastic decline in living standards recorded in many other CIS countries in the early 1990s, has so far failed to bring about much-needed structural changes.
While Uzbekistan has now recorded five straight years of positive per capita GDP growth, the lack of significant macroeconomic and structural reforms, as well the sharp decline in exports since mid-1998, the rapid accumulation of external debt, and the country's declining level of international reserves makes this pattern unsustainable.
The government continues to have a dominating influence on the Uzbek economy. Uzbekistan tightened currency and export controls in its largely-closed economy following the Asian and Russian financial crises, further deterring foreign investors already shying away from the country because of a poor investment climate and Uzbekistan's non-convertible currency, the som.
Analysts argue that continuing administrative and trade controls are inhibiting export growth and discouraging foreign direct investment.
In 2000, Uzbekistan accumulated only $733 million in foreign investment and loans, down from $1.32 billion in 1999 and significantly lower than in other energy-rich former Soviet republics such as Azerbaijan and Kazakhstan.
Privatization of state-owned industries is moving slowly, on a case-by-case basis. Uzbekistan has announced that it intends to privatize 49 percent of Uzbekneftegaz, the state holding company set up in 1998 to unify the country's oil and gas industries, in 2001.
Uzbek President Islam Karimov, in a presidential decree on April 28, 2000, declared that oil and gas deposits in the Ustyurt area of northwestern Uzbekistan are to be priorities for oil and gas exploitation.
In an effort to improve the country's climate for foreign investors, Karimov stipulated that foreign companies engaged in prospecting will be given preferential treatment, exclusive rights and exemption from certain taxes and dues for a set period. Uzbekistan's oil and gas reserves have been estimated to be worth more than $1 trillion.
Uzbekistan is the only country in the former Soviet Union to have increased substantially its oil production since independence. From 66,000 barrels per day (bbl/d) of oil in 1992, Uzbekistan boosted its total oil production to 162,000 bbl/d in 1999.
Although Uzbekistan's oil production in 2000 is estimated to have dipped slightly (to 152,000 bbl/d), the country's increase in oil production over the past decade, along with the decrease in oil consumption (from 190,000 bbl/d in 1992 to 136,000 bbl/d in 2000), has allowed Uzbekistan to cease being a net oil importer.
Oil reserves in Uzbekistan are estimated at 600 million barrels, with 171 discovered oil and gas fields in the country. Among these, oil is produced at 51, gas at 27, and condensate at 17.
The Bukhara-Khiva region contains over 60 percent of Uzbekistan's known oil fields, including the Kokdumalak field, which accounts for about 70 percent of the country's oil production.
In addition, the Fergana region contains another 20 percent of the country's oilfields, and the Ustyurt plateau and the Aral Sea have been targeted for further exploration.
At present, oil and gas deposits in Kokdumalak, Shurtan, Olan, Urgin and south-Tandirchi (all in southwestern Uzbekistan) are being developed rapidly, and oil tanks are being constructed in Angren (Tashkent Region) and in Pap (eastern Namangan Region).
In May 2000, Uzbekistan announced that it intends to sell off 49 percent of the shares in Uzbekneftegaz, the state-owned holding company that controls the country's entire oil and gas sector, to foreign investors by 2002.
In addition, in 2001, as much as 44 percent of the stock of the Uzneftegazdobycha (oil and gas exploration and production) and Uztransgaz (oil and gas transport, as well as up to 39 percent of Uzneftepererabotka (oil refining) and Uzburneftegaz (oil and gas drilling company)--Uzbekneftegaz's subsidiaries--will also be put on the block in a tender.
This tender is part of an aggressive oil and gas investment bid launched by Uzbekistan on April 28, 2000, when President Karimov decreed that foreign companies involved in exploring and extracting oil and gas in Uzbekistan would receive tax exemptions and options to produce any oil or gas they discover within a set period of time.
Since independence, the Uzbek government has invested $1.2 billion in modernizing Uzbekneftegaz, but despite estimates that Uzbek oil and gas reserves are greater than those of all other Central Asian republics put together, the flow of money into the Uzbek upstream has been far slower than in other Central Asian nations.
Economists and energy analysts agree that Uzbekistan's strict currency controls have hindered foreign investment, but the Uzbek government has said it intends to dismantle those restrictions by mid-2001.
The Uzbek government is gearing up to offer over 80 fields, both producing and virgin territory, to prospective investors. Of these, 78 of the fields are contained in 16 exploration blocks, and eight individual fields (with total remaining reserves of some 1.2 billion barrels of oil equivalent) have also been opened up for potential foreign participation.
Those fields include four in the South West Gissar Basin (Dzharkuduk, Gumbulak, South Kizilbairak and South Tandircha) and four in the Amudarya region (North Shurtan, Shakarbulak, South Kemachi and Umid).
Shell recently completed a study of six blocks in the Ustyurt plateau region which, according to Uzbek government figures, contain reserves of 1.7 billion tons (12.5 billion barrels) of oil and condensates.
Uzbekistan is also seeking investment to boost production at existing fields. Uzbekneftegaz already has teamed with oil services giant Baker Hughes in a joint venture to increase oil production at the country's North Urtabulak field to over 300,000 tons per year (6,000 bbl/d).
Baker Hughes, which will invest $8 million in the North Urtabulak project, also has the option to develop the Adamtash, South Kemachi, and Umid fields, with total investments of $120 million.
Uzbekistan shares many of the problems of other countries in the Caspian Sea Region, including a lack of export pipelines and remoteness from markets.
In fact, Uzbekistan is one of the two landlocked countries in the world that are surrounded entirely by other landlocked countries. Uzbekistan's only current export option is to reverse an existing crude oil pipeline that brings oil from Omsk, Russia, to Uzbek refineries.
However, the relatively small volumes of Uzbek oil that will be available for export over the next 10-20 years will probably be insufficient to support the construction of a new export pipeline unless additional volumes are added from other countries in Central Asia.
Uzbekistan has signed a memorandum of understanding with Turkmenistan, Afghanistan, and Pakistan to build the Central Asia Oil Pipeline (CAOP), which, if constructed, would transport Central Asian oil via Afghanistan to a proposed new deepwater port at Gwadar on Pakistan's Arabian Sea coast.
However, continuing unrest in Afghanistan has stalled any progress on the CAOP. In addition to the CAOP, Uzbekistan could tie into the proposed 1,800-mile pipeline from Kazakhstan to China.
Uzbekistan has two older refineries at Fergana and Alty-Arik, and a new one at Bukhara, with a total refining capacity of 222,000 bbl/d.
The Bukhara refinery, which was the first refinery built in the CIS since the breakup of the Soviet Union and cost in excess of $400 million, currently has a capacity of 50,000 bbl/d, although it is expected to expand to 100,000 bbl/d and refine both crude oil and gas condensate.
The drop in Uzbekistan's oil production in 2000 resulted in Uzbek refineries operating at less than capacity. In 2000, Uzbekistan's oil refineries refined 5,191,000 tons (104,247 bbl/d) of crude oil and condensate.
Over the course of 2000, Uzbek refineries produced 1,546,400 tons (31,055 bbl/d) of diesel fuel, 1,355,000 tons (27,211 bbl/d) of gasoline, 1,331,000 tons (26,729 bbl/d) of heating oil, 328,0000 tons (6,587 bbl/d) of kerosene, and 129,300 tons (2,596 bbl/d) of lubricants, among other products. Uzbekistan's limited refined product exports move by rail and road to neighboring countries and to export ports on the Black Sea.
Along with joint ventures with foreign investors, Uzbekistan is looking to refinery modernization as a crucial component of the country's strategy to attain self-sufficiency in oil.
Following a 1998 tender, Mitsui (Japan) commenced a $200-million upgrade to expand desulfurization capacity at the Fergana refinery.
In addition, in 1996, Texaco (U.S.) and Uzneftepererabotka formed the UZ-Texaco joint venture at the Fergana refinery in 1996 to produce and market Texaco-branded engine, transmission, and hydraulic lubricants from local crude oil.
UZ-Texaco is one of the few companies with a license to convert earnings in Sums into dollars.
Uzbekistan is the third largest natural gas producer in the CIS and one of the top ten gas-producing countries in the world. Since becoming independent, Uzbekistan has ramped up its gas production nearly 30 percent, from 1.51 trillion cubic feet (Tcf) in 1992 to 1.96 Tcf in 2000.
The country's gas reserves are estimated at 66.2 Tcf, with the richest gas district in the Uzbek section of the Ustyurt Region. Most gas production is concentrated in 12 deposits, particularly in fields such as Shurtan and Kokdumalak.
In order to offset declining production at some older fields such as Uchkir and Yangikazen, Uzbekistan is speeding up development at existing fields such as the Kandym and Garbi fields, as well as planning to explore for new reserves.
Much of Uzbekistan's natural gas requires processing due to its high sulfur content. The majority of Uzbekistan's gas is processed at the Mubarek processing plant, which has a capacity of over 1 Tcf/year, although in March 2001 Uzbekneftegaz is set to launch the Shurtan Gas-Chemical Complex, which will include installations to clean gas, a natural gas booster compressor station, and a plant with the capacity to produce 125,000 tons of polyethylene and and 137,000 tons of liquefied natural gas per year.
The complex, which is located by the Shurtan gas fields in the southwest part of the country in the Kashkadarinsky region, was completed in December 2000 at a cost of $1 billion.
Uzbekneftegaz financed the project with loans from international financial institutions, including over $400 million from the Japanese Bank of International Commerce and around $200 million from the U.S. Ex-Im Bank.
Although most of Uzbekneftegaz's 2000 budget went toward the completion of the Shurtan complex, the company has not neglected the rest of the country's gas infrastructure.
The company's Kodzhaabad underground gas storage facility in Andizhan Region opened in 1999 at a cost of $72 million, allowing increased gas shipments to Uzbekistan's industrial heartland in the Fergana Valley.
In January 2001, Trinity Energy (U.K.) committed to investing more than $400 million, over a 40-year period, in exploration and production of gas condensate deposits in the Plato Ustyurt region.
In addition, representatives of Russia's Itera and Uzbekneftegaz are negotiating to form a joint venture for the development of new gas fields in Uzbekistan.
Although Uzbekistan's gas production has been on the increase, the country's growing gas consumption (1.42 Tcf in 2000, up from 1.09 Tcf in 1992) has meant that the amount of gas available for export--approximately 0.5 Tcf--has remained relatively steady since 1998.
Uzbekistan exports natural gas to Kazakhstan, Kyrgyzstan, Russia, and Tajikistan via the Central Asia-Central Russia pipeline.
Tajik and Uzbek officials have been operating under an arrangement under which Uzbekistan supplies Tajikistan with gas ($25 million worth in 2000) as payment for Uzbekistan's use of a transit pipeline that crosses the Leninabad region of northern Tajikistan.
Russia and Uzbekistan have reached agreement on Russian payment for Uzbek gas supplies, but frequent non-payment by Kazakhstan and Kyrgyzstan has been a problem, forcing Uzbekistan to cut gas supplies to these countries to demand payment for gas already received.
In late-January 2001, severe cold weather in Central Asia froze several sections of the Mubarek-Kogan-Gazli gas pipeline in Uzbekistan that supplies Kazakhstan and Kyrgyzstan, resulting in gas shortages in southern Kazakhstan and Bishkek and heightening tensions over gas supplies.
Kazakhstan has agreed to buy about 850 million cubic meters (30 billion cubic feet (Bcf)) of Uzbek gas at a rate of $40 per 1,000 cubic meters (35,300 Bcf) in the first half of 2001.
However, Kazakhstan has announced its intention to start extracting from its own Amangeldy gasfield in the south of the country to put an end to its reliance on Uzbek gas at the end of 2001.
Uzbekistan has terminated gas supplies to Kyrgyzstan more than once for the latter's debts for gas, including in December 2000 and January 2001.
Kyrgyzstan buys Uzbek gas for $42 dollars per 1,000 cubic meters, paying 50 percent in cash and 50 percent in Kyrgyz-made goods, in addition to supplying Uzbekistan with water for the cotton-growing season.
In an effort to expand and diversify its customer base for gas exports, Uzbekistan has sought to develop alternative export routes.
One proposal calls for an expansion of the existing Central Asia-Central Russia pipeline system that would enable the Central Asian republics to export gas to European markets.
Uzbekistan also has signed a memorandum of understanding with Turkmenistan, Afghanistan and Pakistan to participate in the Central Asia Gas (Centgas) pipeline project to export gas to Pakistan and possibly India.
In addition, Uzbekistan is looking to participate in a proposed 5,000-mile pipeline to bring gas from Turkmenistan and Kazakhstan east to China.
Uzbekistan serves as a transit center for gas from Turkmenistan. According to an agreement signed by Turkmenistan's President Sapamurad Niyazov and Gazprom's Rem Vyakhirev, supplies of Turkmen gas along the northern Uzbekistan-Kazakhstan-Russia route resumed on December 29, 1999.
Turkmenistan supplied over 700 Bcf of gas to Russia in 2000, and has agreed to increase shipments to over 1.8 Tcf in the long run.
Minister of Energy and Fuel: Valery Atayev
Proven Oil Reserves (1/1/2001E): 0.6 billion barrels
Oil Production (2000E): 152,000 barrels per day (bbl/d), of which 107,000 bbl/d is crude oil
Oil Consumption (2000E): 136,000 bbl/d; (2001E): 135,000 bbl/d
Crude Oil Refining Capacity (2000E): 222,000 bbl/d
Natural Gas Reserves (1/1/2001E): 66.2 trillion cubic feet (Tcf)
Natural Gas Production (1999E): 1.96 Tcf
Natural Gas Consumption (1999E): 1.42 Tcf
Coal Reserves (1/1/99E): 4.4 billion short tons (3.3 billion short tons is lignite, 1.1 billion short tons is anthracite)
Coal Production (1999E): 3.2 million short tons (Mmst)
Coal Consumption (1999E): 3.2 Mmst
Electric Generating Capacity (1999E): 11.77 gigawatts
Electricity Generation (1999E): 43.45 billion kilowatt-hours (Bkwh)
Electricity Consumption (1999E): 42.88 Bkwh
Organization: Uzbekneftegaz (state oil and gas holdings company); its four subsidiaries include: Uzgeoneftegazodobycha (oil and gas exploration company), Uztransgaz (transport monopoly), Uzneftepererabotka (refineries and petroleum products), and Uzburneftegaz (oil and gas drilling).
Major Oil Fields: Mingbulok, Kokdumalok
Major Oil Refineries (1/1/2001E capacity): Fergana (106,000 bbl/d); Alty-Arik (66,000 bbl/d); Bukhara refinery (50,000 bbl/d)
Major Gas Fields: Gazli, Shurtan, Kokdumalak, Kandym
Major Power Plants (capacity): Syr Darya (3,000 MW; upgrade to 3,600 MW), Taljmardjan (under construction, 3,200 MW), Tashkent (1,920 MW), Angren (1,800 MW), Navoi (1,250 MW)
Source: United States Energy Information Administration
© 2001 Mena Report (www.menareport.com)