Exploration Will Help Meet Real Demand
BMI View: Uzbekistan's underexplored acreage has attracted investment from independents and national oil companies (NOC) alike and is a testament of the industry's belief in its prospectivity. Exploration and further development of its hydrocarbon resources is much needed particularly if the country wishes to keep up with its gas export obligations without suppressing domestic demand.
A string of exploration deals in Uzbekistan have been agreed upon or confirmed in the backdrop of an oil and gas exhibition in Tashkent. Interest in new exploration in the Central Asian country has come from both independents and national oil companies (NOCs) alike, namely:
Tethys Petroleum : The Central Asia-focused independent signed a Protocol of Intent (POI) with state-owned Uzbekneftegaz to explore the Bayterek block in the North Ustyurt Basin, north Uzbekistan. Exploration could begin following regulatory clearance in a year's time.
Gazprom : UzDaily reported that the state-owned Russian gas firm plans to sign a production sharing contract (PSC) for the Dzhel gas field in the Ustyurt Basin by the end of 2013 and begin development.
PetroVietnam : Vietnam's NOC could begin exploration in the Molabur block in the Ustyurt Basin also by the end of 2013. Total investment in the block is estimated at about US$61.6mn. PetroVietnam may also look into fields in the Bukhara-Khiva region and Ferghana, where it had started geological studies.
Uzbekistan is also planning to offer more acreage for exploration and production (E&P). During the oil and gas exhibition, Uzbekneftegaz announced that it plans to make six more blocks available for foreign investment between 2013 and 2014. Three of these blocks are in the Bukhara-Khiva region, two in the Middle Syrdarya region and one in Fergha na.
No Lack Of Demand For Gas, Only Shortage
There is no lack of demand for Uzbek gas. The country has a long-term supply contract with China that will see 10bn cubic metres (bcm) of gas flow east annually from 2014. Russia has also contracted about 7.5bcm per year of gas from Uzbekistan under a current supply deal. This will make up about 27% of total gas production at 2014 levels, which we expect at about 65.5bcm according to existing project line-ups.
In addition, the country has ambitious plans for domestic gas usage. Gas demand will continue to rise if the government succeeds in its goal of connecting more of the underdeveloped country to th e gas grid. Gas will also be needed as feedstock for several gas-based downstream projects as the government seeks a nine-fold increase in the production of gas chemicals by 2018, as reported by UzDaily. These gas projects include:
Ustyurt Gas Chemical Complex: A joint venture between a consortium of Korean companies (Kogas, Honam Petrochemical, LG International, SK Gas and STX Energy) and Uzbekneftegaz, the US$4.16bn plant will also produce polyethylene, polypropylene and other petrochemicals for domestic and export markets. It will require 4.5bcm of gas per year when it comes online in 2016, which is to be supplied by Kogas' Surgil field.
Mubarek Gas Chemical Complex: Uzbekneftegaz and Singapore-based Indorama Group entered into an agreement to build this US$2.5bn plant that is to produce polypropylene, gas condensate and pyrolysis fuel. The plant is scheduled for a 2015 start.
Otlin Yo'l Gas-To-Liquids (GTL) plant: If a final investment decision (FID) for the gas refinery is made in 2013, this could bring the Sasol-Petronas-Uzbekneftegaz facility online in 2017. The GTL plant will require 3.5bcm of gas per year to produce about 38,000 barrels of fuel products per day.
As such, Uzbek gas demand will also be high. We expect gas consumption to rise from an estimate of 50.9bcm in 2012 to 59.2bcm by 2022 but acknowledge that this is a very conservative forecast. We believe that available domestic supplies, after taking Uzbekistan's export obligations into account, will not be able to fully meet the country's real demand needs. Domestic gas production is only expected to rise at an average of 2% per annum to 76.7bcm in 2022 based on projects that have been confirmed to be coming on-stream, such as Lukoil's South Gissar West development and Kogas' Surgil field. Therefore, hiking gas production will ease the supply bottlenecks necessarily to fulfil both domestic and export requirements for gas.
|Supply Limiting Consumption Growth Potential|
|Uzbek Gas Production, Consumption & Net Exports, 2012-2022 (bcm)|
Pushing Into New Frontiers
Steady investment into exploration and the opening of new acreage for foreign investment could help support Uzbekistan's long-term gas production growth, even if output will not come online early enough to support real consumption needs in the short- to medium-term. Uzbekneftegaz' offer of a block in the Middle Syrdarya region for foreign participation is encouraging, as it is even more underexplored than Bukhara-Khiv and Ferghana.
|Producing Regions||Prospective Regions|
At end-2012, official Uzbek data stated that the country has 104 producing oil and gas fields, 79 being developed and 60 under exploration. The US Energy Information Administration (EIA) estimates that the country has 582.1mn barrels (bbl) of oil and 1.8trn cubic metres (tcm) of gas reserves. However, given a 2012 US Geological Survey (USGS) estimate that the Amu Darya basin in Central Asia, part of which covering south west Uzbekistan, could have technically recoverable but undiscovered resources of 962mn bbl in oil and 1.46tcm in gas, Uzbekistan could have significant hydrocarbons left to be uncovered and developed.