Uzbekistan broadens its portfolio
Central Asia’s third-largest gas producer is restructuring its energy mix to solve supply shortages
Uzbekistan’s president Shavkat Mirziyoyev is prioritising a series of economic and administrative reforms across the energy sector. A key part of this is the development of a strategy that focuses on domestic supply and the country’s nascent petrochemicals sector.
Unusually for a Central Asian nation, Uzbekistan enjoys a high degree of gasification. And the majority of the 60bn m³ of gas the country produces annually is used domestically, unlike its neighbours. But the country still experiences supply shortages that have hindered economic growth and, at times, triggered civil unrest.
Uzbekistan also struggles to produce enough domestic electricity. Total production is half that of Kazakhstan, despite a significantly larger population. In 2019, reports emerged that Uzbekistan owed Russian oil and gas producer Lukoil $600mn for gas that was diverted to the local market at a discount. The issue is set to become even more acute in the next few years. Uzbekistan is forecasting an economic and demographic boom that could see as many as 600,000 people join the workforce annually.
To help solve these challenges, Uzbekistan has set out plans to limit gas exports, improve the efficiency of its gas and power networks and develop alternative sources of energy. On 18 January, Prime Minister Abdulla Aripov said the government plans to end exports of gas and fuels by 2025. This would be partially achieved through the staggered imposition of export duties.
Uzbekistan has set out plans to limit gas exports, improve efficiency in the network and develop alternative sources of energy
From 1 April, Uzbekistan will increase the excise tax rates for fuel produced in the country by almost 23pc. At the same time, the country hopes to increase gas production by 20pc by 2030. The energy ministry announced a tender for the construction of a 1,500MW gas powerplant to help provide demand for these additional volumes.
Uzbekistan will also have to make a decision about its international commitments. Currently, it exports approximately 14bn m3/yr of gas, largely to China and Russia. Non-Uzbek investors such as Lukoil have established operations intended primarily to service the export market. Moreover, in July 2019, Uzbekistan renewed its commitment to a fourth line (Line D) of the Central-Asia China gas pipeline.
The government also envisages a greater role for renewables. The ambition is to increase the share of renewables in the energy mix to 20pc by 2025. Hydroelectric, solar and wind would account for 15.8pc, 2.3pc and 1.6pc respectively.
In February, the ministry of energy announced tenders for three 200MW solar power plants in the Surkhandarya, Samarkand and Jizzakh regions, as part of a wider government strategy to increase solar generation capacity by 900MW. Within the framework of new public-private partnerships, these projects will be awarded 25-year power purchase agreements by the government. However, investors are facing a low-price environment, with tariffs currently fixed at UZS 295/kWh ($0.03/kWh).
Petrochemicals is another crucial growth sector in which the government has invested significant efforts. Work has already begun on the $2.3bn Oltin Y’ol gas-to-liquids (GTL) refinery, as well as on gas processing plants in Ustyurt and Kundym. Uzbekistan aims to spend $1.4bn on modernising refineries in Bukhara, Ferghana and Altyarik, which are running at 30pc of their capacity due to lack of investment. US company Honeywell UOP, France’s Axens, Denmark’s Haldor Topsoe and South Korea’s SK Engineering are contracted for the work.
20pc – national gas increase by 2030
The Uzbek government has also set out plans to build nuclear power capacity to free up more gas for the petrochemicals sector. During an upcoming visit to Moscow in June, Mirziyoyev is expected to sign a contract with Russian nuclear company Rosatom for the construction of two reactors, each with a capacity of 1.2GW. The energy generated would cover 15pc of Uzbekistan’s demand beyond 2028 and enable the country to save 3.7bn m3/yr of gas.
But, despite signing a roadmap in May 2019 to build the reactors, Uzbekistan and Russia have yet to complete the financing for the project. Rosatom is likely to fund only half the estimated $11bn cost, and Uzbekistan has yet to outline from where the remainder could be sourced.