Uzbekistan eyes gas-driven downstream growth
New investment in gas-to-chemicals capacity could add value to an economy hobbled by declining Chinese import appetite
Uzbekistan’s Jizzakh Petroleum has firmed up plans to invest in a new state-of-the-art gas-to-chemicals complex, providing a welcome boost to the central Asian nation’s economic prospects in a year that has seen plunging gas exports to China.
The joint venture between NOC Uzbekneftegaz and a subsidiary of Russia’s Gazprom will build a 500,000t/yr capacity olefins plant, based on methanol-to-olefins (MTO) technology. It will process 1.5bn m³/yr of gas and manufacture high-quality polymers—supplying products to textile, processing, automotive, pharmaceutical and other industries.
The facility is scheduled to start up in 2025 and will focus on production of low-density polyethylene, ethylene-vinyl acetate, polyethylene terephthalate and polypropylene to be both supplied to local consumers and exported to external markets, chiefly Europe and Asia.
17.1pc – Decline in Uzbek gas production in H1 2020
The project chimes with a strategy of Uzbek president Shavkat Mirziyoyev’s government to both attract foreign direct investment and boost exports of manufactured products, rather than tie itself to just exporting raw commodities such as gas. The gas-to-chemicals project is important because it will allow higher value-add products to be exported, which means the country is monetising its gas production more efficiently than if it were to be exporting just gas, a Jizzakh Petroleum official tells Petroleum Economist.
It will also help to diversify the economy by developing different industries including textiles, chemicals and parapharmaceuticals. “Large projects such as an MTO plant will utilise some previously exported gas to materially contribute to [the government] strategy. This gas export substitution policy guarantees feedstock reserves for the lifetime of the project,” the company says.
Uzbekistan, which last year produced 56.3bn m³ of gas according to BP Statistical Review figures, has taken a material hit from sharply reduced demand from China and Russia as the Covid-19 pandemic has bitten. The country’s production decreased by 17.1pc year-on-year in January-June, to just under 25.15bn m³, according to the state statistics committee.
Uzbek gas exports to China have averaged between 8-9bn m³/yr in recent years, while domestic demand in 2019 was 43.5bn m³.
Uzbekistan could halt all gas exports by as early as 2025 as part of its domestic value-add strategy
Russia’s Lukoil announced in late August that it had suspended gas exports to China from its Uzbek projects in light of weaker demand for pipeline gas relative to cheaper LNG. The firm was forced to redirect as much as 5bn m³ of gas to the domestic Uzbek market, according to Lukoil vice-president Pavel Zhdanov.
This export demand uncertainty amplifies the case for continuing with expanding the domestic gas processing sector. Complexes were commissioned in 2015 at Ustyurt and in 2018 at Kandym that added additional petrochemicals capacity to the longer-standing Shurtan and Mubarek gas processing units.
These projects will require sustainable gas feedstock. Gas availability in Uzbekistan is lower than in neighbouring Turkmenistan, which last year produced 63.2bn m³. This means that more export volumes could face being curtailed.
Even before the Covid crisis took hold, Uzbek policymakers were mooting much deeper long-term gas export cuts. In January, prime minister Abudlla Aripov told a party meeting that Uzbekistan could halt all gas exports by as early as 2025 as part of its domestic value-add strategy.
More gas will also be needed to help meet rising domestic electricity demand, which by 2030 is expected to double from current levels. This is a further headache for the authorities, which need to ensure sufficient gas supplies to build up future industries while retaining for as long as possible valuable hard currency receipts derived from gas export sales.