Oil & Gas

During the first half of the year development of oil and gas sector of Uzbekistan differed from direction to direction. Thus, the production growth on several positions (petrol, lubricating oils) was registered, while others (oil and gas condensate, diesel fuel, furnace black oil) went down. Total production volume of oil industry in January-June period made 532.9 billion soums or +8.4% compared to January-June 2007.

Oil and gas sector is one of the most important economic sectors in Uzbekistan; it has a share of about 15-16% of industrial production volume in the country annually. Since 1995 oil importing has stopped, but recently it was resumed at a small amount due to under-capacity performance of Fergana oil refinery plant.

Oil and gas industry of Uzbekistan is represented by National Holding Company “Uzbekneftegaz” (“Uzbek oil and gas”) and its six major branches, which operate as autonomous joint-stock companies. Today this structure includes 190 enterprises with staff of about 80,000 people.

An important factor in company’s activity, and in oil and gas sector as a whole, was the reduction of an excise tax on production of oil products and utilizing oilfields since January 1, 2007. In particular, tax rate on utilizing oilfields in oil extraction fell down from 35% to 20%, in gas condensate production - from 32% to 20%, in natural gas production - from 58% to 30%. Excise tax on petrol production dropped from 45% to 28%, on diesel fuel - from 40% to 25% and on kerosene for aircrafts - from 20% to 8%.

2.9% of world’s oil reserves belong to Central Asian region. According to the opinion of specialists, if the current consumption rate keeps the same pace, these reserves will be sufficed for 76 years.

In total there are 194 fields of hydrocarbon raw materials in Uzbekistan, including 88 fields under development, 58 prepared for development, 35 explored and 9 abandoned fields. Forecasted perspectives of oil reserves are valued at 820 million tonnes, condensate reserves at 360 million tonnes. It is expected that until 2020, growth of hydrocarbon reserves will be at 75-112 million tonnes of fuel equivalent per year, and reserves of natural gas under industrial categories will be 60-85 billion cubic meters per year.

Capacity of NHC “Uzbekneftegaz” allows producing natural gas and liquid hydrocarbon at volumes of 58-60 billion cubic meters and 8 million tonnes per year respectively. NHC “Uzbekneftegaz” is eighth biggest company to produce gas in the world and fifth biggest on fuel and energy resources production in CIS. Uzbekistan is not an active member of international oil trading, as its production fully satisfies the needs of three local petroleum refinery plants. Moreover, a small amount of oil is imported to Fergana plant from Kazakhstan due to the features of region’s logistics.

Country’s oil refinery plants have the capacity of refining 11.2 million tonnes of hydrocarbon raw materials annually. Fergana oil refinery plant (along with Altiarik branch in Hamza) alone is able to process up to 8.7 million tonnes of hydrocarbon raw materials per year. The enterprise has a wide range of oil products (about 50 product types), which fully meet international quality standards. In particular, diesel oil is produced for export. Abroad, mainly in Iran, Afghanistan and neighboring CIS countries, motor and transmission oils produced at the plant are of high demand. Bukhara oil refinery plant has a production capacity of 2.5 million tonnes of hydrocarbon raw materials per year. This plant was built in 1997 with the help of Technip. It produces petrol, diesel oil and kerosene for aircrafts.

In summer of 2005 Uzbek-Russian JV “Djarkurgan oil refinery” built an oil refinery plant at a cost of US$7 million and with planned capacity of refining 130 thousand tonnes of crude oil per year. Production capacity of the enterprise is oriented on “heavy” oil refinery with the high content of paraffin.

Gas

Natural gas reserves in Central Asian region make 6.47 trillion cubic meters, or 13.2% of proved reserves of CIS and about 4% of world reserves. 27.6% of them belong to Uzbekistan, 43.4% to Turkmenistan, 27.5% to Kazakhstan, 1.5% to Afghanistan and 0.2% to both Kyrgyzstan and Tajikistan. Forecasted gas reserves in our country are estimated as 6 trillion cubic meters. Uzbekistan is a leader of gas production and processing, although most of the extracted gas (75-80%) is used for local needs. In comparison, neighboring Turkmenistan exports about 75-80% of its extracted gas. Thus, in Uzbekistan 14.5 billion cubic meters out of 65.3 billion cubic meters of extracted natural gas were exported, which made 22.2% (in 2005 gas production was 59.9 billion cubic meters, and gas export was 11 billion cubic meters (18.4%)). About 85% of exported natural gas goes to Russia. It is also to delivered to Kazakhstan, Tajikistan and Kyrgyzstan. Due to modernization of delivery pipe “Central Asia - Center” and new gas fields development, the production and export of gas in the country will be growing in near future. Russia is interested in increased gas supply from Central Asian region, because it needs to provide European countries with fuel. A scheme developed for coming years, according to which Uzbekistan will sell natural gas to Kazakhstan and the latter will sell it to Russia minus its own consumption. Direct export volume of gas to Kazakhstan makes 2 billion cubic meters and is directed to satisfy needs of southern parts of the country. Kyrgyzstan and Tajikistan consume no more than 1 billion cubic meters of Uzbek gas and the major share of consumption belongs to Tajik industrial enterprises, which according to results of 2007 planned to purchase about 630-640 million cubic meters, and in 2008 planned to increase consumption up to 700 million cubic meters.

There are three natural gas processing enterprises in Uzbekistan: Mubarek gas processing plant (more than 28 billion cubic meters), “Shurtan oil and gas” and Shurtan gas and chemical complex (4.5 billion cubic meters), the products of which have a high demand in the region and are exported to Pakistan, Afghanistan, Iran and other countries. By 2010 NHC “Uzbekneftegaz” is planning to increase production of liquefied natural gas 2.8 times, up to 586.9 thousand tonnes. To achieve this US $320 million of foreign investments are planned to be attracted to projects of construction of new liquefied gas rigs and reconstruction of current ones. Increases in production volumes of liquefied gas will be mainly delivered on the basis of Mubarek gas processing plant and “Shurtan oil and gas”. Besides, the program regarding liquefied gas production, which was developed last year, includes projects of gas fractionation system modernization at Fergana and Bukhara oil refinery plants, as well as project of associated gas utilization in the field of Kokdumalak.

In March 2005 “Uzbekneftegaz” introduced first line of propane-cooling complex in Mubarek gas processing plant with planned capacity of 13.6 billion cubic meters. The works on introduction of second line of the complex have begun, with its launch volumes of gas processing will reach 24 billion cubic meters annually.

Mubarek gas processing plant is located in Mubarek district of Kashkadarya region of Uzbekistan and is a part of JSC “Uzbek oil and gas production”. Raw material processed at this plant are natural hydrogen sulphide containing gas and unstable gas condensate, delivered to the plant from UB “Mubarek oil and gas”. Current production capacity is 26549 million cubic meters of sulfurous gas per year, 611.5 thousand cubic meters of unstable condensate. Commodity output is the following: treated residue gas - 24349 million cubic meters, stable condensate - 571.1 thousand tonnes, liquefied gas - 10 thousand tonnes, gas sulfur - 240 thousand tonnes.

Shurtan gas and chemistry complex is the only enterprise in Central Asia which produces polyethylene. It was set into operation in the end of 2001 on the basis of gas condensate field Shurtan. The complex, the cost of which is US $985 million, includes gas treating installation, plant producing 125 thousand tonnes of polyethylene, 137 thousand tonnes of liquefied gas and 130 thousand tonnes of unstable condensate per year. Construction of technological part of the complex was delivered by American ABB Lummus Global, Italian ABB Soimi and three Japanese companies - Mitsui & Co. Ltd., Tokyo Engineering and Nissho Iwai Corporation. Shurtan gas and chemistry complex is the largest enterprise producing polyethylene in Central Asia with capacity of 125 thousand tonnes a year. Besides, the plant produces the following products:

• gas processing - 4.5 billion cubic meters per year;
• output of tank gas - 4.2 billion cubic meters per year;
• liquefied gas - 137 thousand tonnes per year;
• light condensate - 130 thousand tonnes per year;
• sulfur - 4 thousand tonnes per year.

According to last figures Shurtan gas and chemistry complex (Kashkadarya region) exported products worth US$105 million in 2006. This is 12% more in comparison with 2005 figures. In 2006 the largest export volume of Shurtan GCC fell on polyethylene, the share of which was about 88%. Besides, the enterprise processes raw natural gas, exports gas condensate, tank gas, liquefied gas and sulfur, as well as producing HDPE pipes.

Oil and gas companies at stock exchange

Unfortunately, stocks of companies of oil and gas sector are not yet active participants of trades at the stock exchange. The main reason is small supply volume, because majority of leading companies, such as NHC “Uzbek oil and gas”, have not been privatized so far, and vast majority of stocks are owned by the government. Common stocks of such companies as JSC ”Uzoil product” and JSC “Uz oil and gas production” are owned by the government and only preferred stocks are available for trade in the market. This restrains growth of share trade turnover and hinders capitalization of the sector and has a negative effect on stock market as a whole.

On the other hand, total capitalization of companies of the sector shows the importance of this sector in the economy of Uzbekistan. More than half of total market capitalization belongs to oil and gas industry. It should also be mentioned that almost 80% of sector capitalization fell on JSC “Uztransgaz”; this is a striking example of how small share of common stocks released in free floar may result in increase of company and market capitalization.

Source: Essential Investments