Uzbekistan has difficulties finding venues for its gas

Oct 22, 1998 02:00 AM

Uzbekistan is looking to jack up natural gas production by 5 % this year to 54 bn cm, but most export avenues remain closed and the failure of Enron's flagship project has sapped foreign investors' confidence.
Output last year of 51.3 bn cm made Uzbekistan the 8th largest producer in the world, ahead of both Norway and Iran. Proven reserves are around 2 trillion cm, a healthy 1.3 % of the world total.
But while the government expresses a strong interest in bringing foreign investment to the energy sector, the results tell a different story: there are currently no private pipelines in Uzbekistan and no plans to privatise gas facilities. Almost all of the $ 845 mm invested last year in the oil and gas sector in 1997 came from the state's coffers.
Exports represent only 10 % of production, and this summer Enron quietly withdrew after 2 years of fruitless talks with Gazprom failed to secure a hard currency market for gas it hoped to produce jointly with state-owned Uzbekneftegaz.
Enron's departure underscores the frustrations in seeking new export markets for Uzbek gas, given that its existing infrastructure is at the mercy of 2 gas pipeline monopolies -- Gazprom in Russia and Tractebel in Kazakhstan.

Enron's export plan remains the most ambitious attempted so far by a foreign investor in Uzbekistan: a deal signed in 1996 gave it the rights to explore 11 fields in the Surkhandariya and Bukhara region.
The proposed project called for an initial investment of $ 300 mm that would reach $ 1.3 bn over the next 20 years. The US government funded a feasibility study for the project, coupled with a pledge of $ 400 mm financing and insurance support.
The aim was to see gas flowing through the existing infrastructure to markets in Russia and elsewhere from the fields as early as 1998.
But negotiations with Uzbekneftegaz and Gazprom broke down and Enron closed its local office in July, after its agreement with Uzbekneftegaz was not renewed. The US firm is keeping tabs on the situation, though from a distance.

Like other Central Asian countries, double-landlocked Uzbekistan is keen to develop alternative export routes to the Russian pipeline system.
Uzbekistan was a major supplier to other FSU republics before its break-up in 1991. Since independence, exports have mostly been limited to Kazakhstan, Tajikistan and Kyrgyzstan.
Uzbekistan's policy of charging world prices has resulted in frequent cut-offs of supply. In some cases, unique barter arrangements are made, including deals with Kazakhstan involving grain for gas. However, current exports to these countries are around 5 bn cm a year -- well below the capacity of Uzbekistan's system which is integrated into the Central Asia-Central Russia pipeline and capable of carrying 20 bn cm a year to Russia and Central Asian countries.

Ambitions of linking into a southern export pipeline crossing Turkmenistan, Uzbekistan, and Afghanistan to deliver gas to Pakistan have vanished for the time being, now that project sponsor Unocal has put it on the back burner.
Uzbekistan signed an MoU with the countries involved to participate in the project. But in August the Taliban consolidated its control over Afghanistan by capturing key northern towns previously under the control of ethnic Uzbek leader Rashid Dostum.
Uzbekistan is extremely concerned at the growing strength of the Taliban and its potential impact on stability in Uzbekistan, making any future co-operation on a pipeline project which benefits the Taliban unlikely. And the Pakistan market now looks more likely to be fed by domestic production with imports from Iran later.

A planned $ 12 bn gas pipeline running 6,000 km from Kazakhstan to China for possible development towards the end of the next decade is also attracting Uzbek interest. The project is focused on the Karachaganak gas and condensate field being developed by BG, ENI, Texaco and Lukoil.

The Kazakh-China line faces competition from another ambitious but potentially cheaper project being promoted by BP and its Russian partners Sidanco and Russia Petroleum to link the East Siberian Kovyktinskoye gas field to China. Successful agreement between Russia and China could diminish the prospects for the Karachaganak line, and with it another opportunity for Uzbekistan.

Despite a lack of success in export ventures, foreign investors are helping upgrade the gas infrastructure and chemicals sector.
Swedish-Swiss ABB is involved with Mitsui and Nissho Iwai of Japan in a $ 450 mm project to process polyethylene and liquefied gas at the new $ 1 bn Shurtan chemical complex. The project is being backed by the US and Japanese export credit agencies, which are also funding almost $ 200 mm of equipment for MW Kellogg of the US and Japan's Nissho Iwai for a compressor station at the Kokdumalak oil and gas field.
US Ex-Imbank is also funding a $ 90 mm underground gas storage facility in the eastern Fergana valley, on which US Steel and Dresser Rand are working. Initially the storage will be used to supply increased demand in Tashkent during the winters of 1998 and 1999 but eventually could hold some gas for export to an undetermined location.

Source: not available
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