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Uzbekistan plans giant leap in refining

The country is looking to bring its refining industry up to modern standards, but it needs to resolve the problem of oil supply

Uzbekistan is preparing to expand and upgrade its oil refineries to bolster its fuel security, energy minister Alisher Sultanov tells Petroleum Economist. The move represents a massive step for the country’s downstream sector, which has been largely stagnating for years.

The Central Asian state has two main refineries, located in Bukhara and Fergana, with a total nameplate throughput capacity of 8.95mn t/yr (180,000bl/d). But the state-run facilities—which are in poor condition and rely on outdated technology—cannot actually process this much oil, Sultanov says. As a result, the Fergana refinery is loss-making.

The poor state of its refineries means Uzbekistan has to rely on imports to cover its fuel needs, the bulk of which come from Russian suppliers. State statistics show that Uzbekistan—Central Asia’s most populous nation with 33mn people—produced only 2mn t of diesel and gasoline last year. However, many vehicles run on compressed natural gas, with the country boasting among the highest number of natural gas vehicles per capita in the world.

Around 70pc of Uzbekistan’s motor and jet fuel demand is covered by domestic supply, according to Sultanov. But the country’s reliance on sometimes unreliable imports has led to semi-regular fuel shortages, creating a drag on the economy and sparking periods of unrest.

Downstream drive

President Shavkat Mirziyoyev, who took over after the death of his predecessor Islam Karimov in late 2016, has vowed to improve the situation. His administration has embarked on a downstream modernisation drive valued at $900mn. The aim is to increase both fuel quantity and quality.

2mn t – Diesel and gasoline production in 2019

“Post-renovation, the refineries will be equipped with modern technologies and installations working more efficiently and with a reduced environmental impact,” Sultanov says. “Total annual capacity of our refineries will allow us to meet all our country’s needs and develop export capacities.”

Most of the work will take place at the 50,000bl/d Bukhara plant, where investments are expected to reach $600mn over the next five years. South Korea’s SK Engineering was hired in July to help plan the project, and technologies have been licensed from US company Honeywell UOP. However, an engineering, procurement and construction contractor has yet to be announced.

Some upgrades have already taken place, including the replacement last year of the catalyst for a gas oil hydrotreater. As a result, 20pc of the refinery’s diesel output now meets Euro 4 and Euro 5 quality standards, although the rest is still Euro 3.

Other existing processing units will be modernised over the next three years, bringing all diesel production to the Euro 5 standard. The refinery will also start producing Euro 3 gasoline. Under a final stage, fuel oil deep processing units will be added in 2024-25, raising the share of light fuels such as gasoline and diesel in the refinery’s product slate from 77pc to 91pc.

A smaller, $300mn project is planned at the Fergana refinery with similar goals. Like Bukhara, the Fergana plant is owned by NOC Uzbekneftegaz. But it has been transferred under a trust management arrangement to Jizzakh Petroleum, a joint venture between Uzbekneftegaz and an affiliate of Russia’s Gazprom.

Oil imports

Mirziyoyev’s plan to overhaul Uzbekistan’s refining sector has been changed since it was first announced. Tashkent unveiled plans in 2017 for a $2.2bn grassroots refinery in the eastern Jizzakh region, the president’s homeland. The proposed plant was to process 5mn t/yr (100,000bl/d) of oil and produce 3.7mn t/yr of motor fuels, 700,000t/yr of kerosene and 300,000t/yr of other petroleum products. It was to be funded and operated by Russian interests.

However, this plan was ditched two years later and the focus moved to upgrading Uzbekistan’s existing refineries. “It made strategic sense to first complete the modernisation of the Fergana and Bukhara refineries, and only then consider the need to build a new one,” Sultanov explains.

Still, Petroleum Economist understands that another factor was the difficulty of procuring oil for the planned new facility. It was hoped that Kazakh and possibly Russian supplies could be obtained via the Soviet-era Omsk-Pavlodar-Shymkent-Chardzhou pipeline. But parts of the pipeline after Shymkent were dismantled and sold for scrap in the 1990s.

Uzbekistan and Kazakhstan agreed in 2017 to rebuild the pipeline’s Uzbek sections, but nothing came of the project.

As it stands, Uzbekistan’s existing refineries receive oil mainly by rail. Kazakh crude is piped to Shymkent and then loaded onto wagons for further transport. The two countries agreed in 2019 on 2mn t (40,000bl/d) in annual oil supplies. However, the current import method has “logistical difficulties”, Sultanov says, citing this as a factor behind Uzbekistan’s low refining utilisation rate.

Problems with logistics have similarly prevented fellow landlocked Central Asian states Kyrgyzstan and Tajikistan from building up their refining industries. Uzbekistan will need to source oil to make use of the refining capacity it is upgrading and expanding.

Domestic supply

The country is pinning its hopes on growing domestic oil production. But first it must arrest the decline in its output.

Karimov’s isolationist regime stifled investment in Uzbekistan’s oil and gas reserves, and this had a clear impact on extraction rates. Crude oil production has fallen fourfold over the past decade, Sultanov says, while gas condensate output has fallen by a quarter.

Mirziyoyev’s administration has sought to open the sector up to foreign investors through a series of reforms—from free-floating the currency to easing centralised state control over the industry. But these reforms have taken time, and despite ambitious growth targets, the decline has continued. State statistics show Uzbekistan lifted less than 700,000t (14,000bl/d) of oil and under 2.1mn t (52,000bl/d) of condensate in 2019.

$900mn – Downstream modernisation drive

The government has reached out to investors from many countries. But those that have signed up to new projects have mostly hailed from Russia, which—primarily through Lukoil—is already Uzbekistan’s biggest upstream investor.

Current bearish conditions make the search for foreign cash all the more difficult. Many IOCs are scaling back their activities to focus on core areas. BP, in partnership with Azerbaijan’s state-owned Socar, notably reached a preliminary deal on establishing a production-sharing agreement (PSA) for two blocks in Uzbekistan’s Ustyurt region earlier this year. But the UK major has since said it will not explore in any countries where it does not already operate, as part of its pledge to reach net-zero emissions.

The main goal is to bring investors on board at harder-to-recover oil projects, according to Sultanov.

“Most global oilfields experience an initial phase of easy extraction for several years, and then it is necessary to, literally, dig deeper,” he says. “This requires much investment and modern knowhow. Given current oil prices, this is not an easy task.”

Uzbekistan’s cabinet signed a decree in July on introducing a new risk-service agreement (RSA), commonly used for hard-to-recover and mature fields. Under these contracts, operators strive to increase production at fields—at their own expense and risk. They then receive a share of the incremental output in return.

Tashkent had planned to establish a framework for RSAs last year. At the same time, Petroleum Economist understands the government is no longer offering PSAs, and a new tax code enacted in December abolished a special tax regime governing those contracts.


Domestic fuel supplies will receive a boost from a new gas-to-liquids (GTL) plant due onstream in early 2021.

The $3.6bn project will convert up to 3.6bn m3/yr of gas into 1.5mn t/yr of kerosene, diesel, naphtha and LPG. Diesel will be used in the country’s agricultural, transport and mining sectors, while kerosene will be used in the airline industry. Uzbekistan wants to position itself as a hub for air travel between Asia and Europe, but this will be possible only with a reliable supply of jet fuel. The LPG will be sold primarily as vehicle fuel.

The naphtha, on the other hand, will be fed into a cracker under construction at the nearby Shurtan gas processing complex to produce ethylene and polyethylene. These commodities will be valuable for Uzbekistan’s textile industry. 

Uzbekistan has a considerable volume of gas—estimated by BP at 1.2tn m3 of proven reserves. But the only export markets are Russia, which has plenty of its own gas, and China, which uses its multiple supply sources to drive a hard bargain on price.

Faced with these poor choices, Uzbekistan is looking to use as much gas as it can internally to produce higher-value products. GTL technology achieves this while also strengthening the fuel supply.

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