Uzbekistan contains significant oil and gas reserves, and currently ranks as the world's eighth largest natural gas producer.
Even though Uzbekistan is remote to the Middle East Region, it should be taken in account that portions of it’s Gas resources will find their way to the region to Turkey , via Russian or Iranian pipes, thus Uzbekistan may become an important player in the region’s oil & gas sector.
Note: information contained in this report is the best available as of March 2000 and can change.
Uzbekistan has lagged behind other former Soviet states in the pace of its reforms. An economic reform program had been put into place in 1994 that resulted in support from the International Monetary Fund (IMF), the World Bank, and the European Bank for Reconstruction and Development.
However, economic difficulties, including a poor cotton harvest and a lack of hard currency reserves, led President Karimov to reverse this reform program and to impose more government control over the Sum, Uzbekistan's currency.
In October 1996, the IMF announced a suspension of its Stand-By Arrangement pending the establishment of corrective measures to Uzbekistan's economy.
Strict currency controls were introduced in October 1996 that do not allow investors full convertibility of the Sum into foreign currency, make it very difficult for hard currency to leave the country, and set an official exchange rate for the Sum that is not in line with black market rates.
The controls do not affect exports, which are paid for in hard currency. However, they have affected costs inside Uzbekistan because suppliers have asked to be paid at the black market rates.
In mid-1999, only 29 companies had a license to convert earnings in Sums into dollars. In addition, the Central Bank limits transactions by enterprises to interbank transfers that have taken from several days to several months to clear.
The overall effect of these measures on trade and investment in Uzbekistan has been negative. Cumulative foreign investment in Uzbekistan reached $400 million dollars in 1998, far less than in other hydrocarbon-rich former Soviet republics such as Azerbaijan and Kazakhstan.
Seventeen U.S. companies effectively ceased operations in Uzbekistan during 1998, including a number of major multinationals such as Enron and Unocal. As 1999 continued, other companies cut back on operations or left Uzbekistan altogether. Privatization in Uzbekistan has also been lagging.
State oil and gas company Uzbekneftegaz has estimated that 63 percent of the country sits on hydrocarbon deposits, with the vast majority of them containing natural gas.
Uzbekistan's gas reserves are roughly comparable to those of the Netherlands and Indonesia, and rank among the 15 largest in the world.
There are five primary oil and gas regions within Uzbekistan. From west to east, they are the Ustyurt, Bukharo-Khivin, Southwest-Gissar, Surkhan-Dar'ya, and Fergana regions.
Over 60 percent of the 160 known fields are in the Bukharo-Khivin region, with another 20 percent in the Fergana region.
State-run Uzbekneftegaz accounts for virtually all of the oil and gas drilling in the country. Uzbekneftegaz invested $182 million in 1999, and has set 2000 investment at $166 million.
However, foreign oil and gas investment in Uzbekistan has been limited compared to that in the other Caspian states.
Although there is great potential for further development of this sector, Uzbekistan's difficult business climate has been a deterrent to progress.
Uzbekistan's currency convertibility restrictions have hindered oil and gas investment, as has the country's remoteness from world markets - Uzbekistan is one of the two landlocked countries in the world that are surrounded entirely by other landlocked countries. Privatization of Uzbekneftegaz has also been limited.
Uzbekistan has substantially increased its oil production since independence, with total oil production (including natural gas liquids) increasing from 66,000 barrels per day (bbl/d) in 1992 to an estimated 213,000 bbl/d in 1999.
As a result, Uzbekistan ceased being a net importer of petroleum in 1996. Uzbekneftegas has projected that by 2010, crude oil output will 240,000 bbl/d.
Most of the country's 85 known oil deposits are small. The major exception is the Kokdumalak field in the Bukharo-Khivi region which accounts for about 70 percent of Uzbekistan's production.
Several regions will be targeted for exploration during 2000, including the Aral Sea and the Ustyurt plateau.
Uzbekistan has approved a joint project between Baker Hughes and Uzbekneftegaz to increase oil production at North Urtabulak, and Baker Hughes will invest $8 million in the project.
Baker Hughes 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 remoteness from markets. The lack of export pipelines in the region means that Uzbekistan has been unable to sell its oil on world markets.
Uzbekistan's only current 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 proposed South Pipeline, sometimes known as the Central Asia Oil Pipeline (CAOP).
If constructed, the CAOP would transport Central Asian oil via Afghanistan to a proposed new deepwater port at Gwadar on Pakistan's Arabian Sea coast.
No progress has been made on the CAOP pipeline due to unrest in Afghanistan, including the August 20, 1998 U.S. bombing raids on suspected Afghan strongholds of suspected terrorist Osama bin Laden. In addition to the CAOP, Uzbekistan could tie into the proposed 1,800 mile pipeline from Kazakhstan to China .
Refinery modernization is crucial to Uzbekistan's goal of self-sufficiency in oil. Uzbekistan has ended its imports of crude oil from Russia and refined products from Kazakhstan and Russia.
Uzbekistan's limited refined product exports move by rail and road to neighboring countries and to export ports on the Black Sea.
Uzbekistan has two older refineries at Fergana and Alty-Arik, and a new one at Bukhara, the first built in the Newly Independent States since the breakup of the former Soviet Union.
Texaco 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. Following a 1998 tender, Mitsui commenced a $200 million upgrade to expand desulphurization capacity at the Fergana refinery.
The first phase of the new million refinery in Bukhara went online in 1997. This refinery is designed to process condensates from the Kokdumalak field, and to produce motor gasoline for export and gasoline, diesel fuel, and kerosene for domestic consumption.
The first phase of construction, enabling the refinery to process 50,000 bbl/d, cost $270 million, with ancillary facilities bringing the cost to $400 million.
The ultimate capacity of the refinery is expected to be 100,000 bbl/d of both condensate and crude oil from Uzbekistan's fields.
Uzbekistan's gasoline distribution system is in great need of modernization and investment. Currently gasoline is distributed through 88 distribution centers and 800 refueling stations.
Over 200 refueling stations have been privatized. It is not uncommon in rural areas to see tanker trucks stopped on the side of the road operating as mobile refueling stations.
The Uzbek Finance Ministry increased crude oil and gasoline prices in 2000 to make up for a rise in the cost of oil drilling and refining. Crude and gasoline prices increases were increased by about 50 percenton February 1.
The official price of gasoline, previously set at 75 Sums per liter, rose to 110 Sums per liter while the price of crude oil sold to refineries by the state oil and gas company, Uzbekneftegaz, rose from 10,000 Sums per metric ton to 16,000 Sums per metric ton.
Source: United States Energy Information Administration.
© 2000 Mena Report (www.menareport.com)