Uzbekistan eyes value over volume
Uzbekistan is shifting its focus in the oil and gas industry from achieving energy independence to maximising profit, deputy energy minister Bekhzot Narmatov said a webinar on June 23.
Speaking at a webinar organised by international oilfield services provider ERIELL, Narmatov also confirmed that the country, which traditionally exports gas to Russia, had bought 1.5bn m3 of supplies from Russia's Gazprom during the first quarter.
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This policy shift comes four years after president Shavkat Mirizyoyev assumed power, announcing ambitious plans to expand oil and gas production. The Central Asian state's gas reserves pale in comparison to those of neighbouring Kazakhstan and Russia, but are still considerable in their own right, estimated by BP at 1.2 trillion m3 proven. Output comes to around 60bn m3/yr.
Uzbekistan supplies gas to both Russia and China, but is looking to bring exports to zero by 2025, as part of a push to use more gas at home for power generation and creating polymers and chemicals that can be used to create higher-value products. With scarce supply of oil-based fuels, Uzbekistan has also developed one of the most extensive networks of compressed natural gas (CNG) filling stations in the former Soviet Union, and in some regions more than 99% of vehicles run on CNG, Narmatov said.
Uzbekistan still wants to expand domestic upstream development, but in a way that is cost effective, the minister stressed. And the focus is now on maintaining rather than growing output. In the meantime, it will import as much gas as it needs to support economic growth.
"If Gazprom is offering us a good price, we are buying from Gazprom," he said, adding that Uzbekistan would revaluate its resources to extract gas domestically in the most cost effective way. "We are moving away from a volume-based to a profit-based approach."
Uzbekistan is planning an initial public offering at its national oil company Uzbekneftegaz, after which point the producer "will be responsible for every dollar spent," Narmatov said.
He is also pointed to Uzbekistan's strong potential for solar and wind energy, and also hydrogen. The government expects to have around 3 GW of wind capacity up and running within two or three years, while a further 1 GW will come from solar plants.
Investment climate
The Uzbek government has reached out to international investors to exploit its gas. Here the country can learn from the examples set by neighbouring Kazakhstan and Russia, Louise Skyner, a partner at Dentons, commented at the webinar.
"Russia and Kazakhstan have done a reasonably good job establishing petroleum regimes where you have a balance of investor and government interests," he said. "I think the challenge for Uzbekistan is both defining and implementing a framework that succeeds in achieving that balance of interests."
Uzbekistan is currently drafting a new subsoil law, and has also introduced risk-service contracts (RSCs), under which investors do not receive rights to resources but are instead paid fees for the services they provide to boost recovery, typically based on how much more oil and gas is yielded. RSCs and potentially exploration licences are good models for Uzbekistan, and the government should offer them in competitive tenders, Skyner said.
Many of the larger international oil companies are shifting away from hydrocarbons in favour of cleaner energies, but Skyner said Uzbekistan could still attract smaller players to its upstream sector.
Asked what have been Uzbekistan's most effective reforms for attracting investment, Skyner said the central bank's decision in 2017 to unpeg the Uzbek som from the US dollar as "critical." He also pointed to the ending of capital controls in 2019.
"I think the challenge now for the Uzbek government, after attracting so much interest internationally, is to maintain the pace of reform," Skyner continued. It is also important that Uzbekistan follows through on its privatisation plans, completing some sales this year in an effective way that creates confidence, he said.