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Home / Other / Analysis / Nation’s Wealth

Nation’s Wealth

Fountains of oil, workers drenched in black liquid from head to toe, huge torches of burning gas… Today’s oil and gas industry no longer looks this way. Today, it stands at the forefront of technological advances, creating real demand for innovative solutions and equipment.

STARTING POINT

Located at the intersection of routes from Europe, Asia and the Middle East, Uzbekistan has a huge capacity. China, India, Japan, the EU - the biggest consumers of hydrocarbons - have long been looking for new suppliers and diversifying their sources. They scrutinize all the opportunities of development of supply channels of liquefied gas and construction of transnational oil and gas pipelines. Uzbekistan is the spotlight of such plans. In the near future, Uzbekistan might rank among the leading most relevant suppliers of hydrocarbons and processed high-tech products.

Under the current market conditions, when oil and gas prices are volatile as never before, efficiency and transition from raw material extraction to deep processing come to the forefront. The time  of ‘light hydrocarbons’ went down in history, so companies have to, as they say, go deeper, opening up new offshore fields, and building state-of-the-art processing facilities. Multibillion-dollar costs are always challenged by immense risks. That is why many global oil and gas giants freeze their projects in anticipation of favorable market conditions. Others, including Uzbekistan, take advantage of developing their innovation capacity, intensively expand their investment portfolio taking over their competitors and launching new initiatives. The domestic oil and gas industry exemplifies a successful combination of growth in mining and improved quality of their processing, and development of new products. The principle of combining new technologies and effective solutions has paved the way to the next round of development of the oil and gas industry of Uzbekistan.

This year marks a kind of anniversary of the domestic oil and gas sector – 130th jubilee since the launch of commercial oil production. It started in 1885 in two wells near the Chimyon village in the Fergana Valley. In 1900, the production was established on an industrial basis, backed by advanced exploration works. In four years the gushing oil was obtained from the depth of 270 meters. However, the technologies of that time did not allow a massive use of crude oil in industry. Therefore, it was decided to build the country's first oil refinery, which was commissioned already in 1906. Of course, it was hardly a plant from the modern point of view: huge tanks were interconnected by a network of tubes, which produced lamp oil and heating oil from the crude. The technology was simple, but very effective.

Transportation of the ‘black gold’ from the field to the factory and other consumers remained a ‘bottleneck’. Those days, the conventional pipelines were an unattainable luxury, so oil was transported by barrels and cartage. The effectiveness of such production was very low, while the benefits proved to exceed the costs. There is an interesting fact: gasoline, currently popular product of oil refining, was not in need and was simply burned in large pits at the plant. Its industrial production started just a decade later, when the first cars appeared in Central Asia.

Despite the technological backwardness of the production process, even those days the products of the domestic oil and gas sector were actively exported to Afghanistan and China, having thereby conditioned its further development. The first oil pipeline from the Chimyon field to the plant and tank farm was built in 1907. By 1940, the plant had its own laboratory and advanced technological process. The annual capacity reached 176,000 tons.

Natural gas, oil’s companion, has a shorter history. The first Uzbek ‘blue fuel’ was obtained in 1953 from the Setalan Tepe field in the Kyzylkum. Transcontinental gas pipelines were laid out with the introduction of a unique Gazly field in 1962, which today exports natural gas from Uzbekistan to Russia.

TIME FOR GROWTH

In the early 90s of the last century, the country was seriously challenged by the issues of fuel and energy independence. The Uzbek State Concern of Oil and Gas Industry Uzbekneftegaz was founded in 1992. Later on it evolved into Uzbekneftegaz National Holding Company to deal with the development and implementation of forward-looking strategy of the industry development based on modernization and technological extension. It was the time of key decisions on the allocation of huge funds of the young republic for the construction of new facilities. Today, Uzbekistan would have to spend significant amounts of currency for the purchase of gasoline and other oil products if a refinery was not built in Bukhara in 1997, and the Fergana refinery was not reconstructed in 2000. 

Uzbekneftegaz capacities allow producing 60-70 billion cubic meters of natural gas and 8 million tons of liquid hydrocarbons. Annual production of hydrocarbons has increased by more than 60% since 1991. Owing to the indicators, Uzbekneftegaz ranks the world’s 11th in the extraction of ‘blue fuel’. Certain ongoing investment projects might make the company an important player in the new markets. Some experts criticize the domestic oil and gas model for its commitment to the so-called ‘oil-needle’. However, the situation has been changing rapidly from the global points of view. Dozens of ongoing high-tech projects are expected to yield a wide range of products with high added value.

The ongoing construction of Ustyurt Gas Chemical Complex (GCC) in Kungrad district of Karakalpakstan is the largest domestic joint project with South Korean partners. Having reached its design capacity, the plant will process 4.5 billion cubic meters of gas per year from Surgil, Eastern and Northern Berdah, and other fields. 400,000 tons of high density polyethylene, 100,000 tons of polypropylene, tank gas, distillate pyrolysis and pyrolysis oil will be products of processing. The project’s total cost exceeds $3.9 billion. The project is funded through the direct investments of its founders - South Korean companies Kogas, Lotte, STX Energy and Uzbekneftegaz National Holding Company in the amount of $1.4 billion, and more than $2.5 billion of loans. The first products are expected this coming July and August.

The development of Kandym group of fields with the construction of a gas processing plant is another big joint project with the Russian Lukoil Company. The project should create more than 2,000 jobs, and the peak of construction of the company’s facilities will involve about a dozen thousand workers. The project ensures the production safety, protection of health and environment. Feasibility study of the project, working documentation, as well as construction hardware will be supplied by the South Korean Hyundai Engineering. The capacity of 8.1 billion cubic meters of gas per year will allow processing hydrogen sulfide gas for the production of purified gas, stable gas condensate, as well as lump and granulated sulfur.

The project has been carried out by Lukoil jointly with Uzbekneftegaz National Holding Company under the PSA Kandym-Khauzak-Shady-Kungrad since 2004. The other day the Russian side has announced the launch of the trial operation of two preliminary gas plants in the Severniy Shady area and Kuvachi-Alat field under the project of ‘Early Kandym Gas’, which is the first stage of the mega-project on integrated development of Kandym group of fields, which includes six gas condensate fields - Kandym, Kuvachi-Alat, Akkum, Parsankul, Khodji and Western Khodji.

Plants with a total capacity of 2.2 billion cubic meters of gas per year will receive natural gas from 34 wells and after some preparation will supply the feedstock to Mubarek Gas Processing Plant. The launch of new facilities would enable the Lukoil to substantially increase the volume of gas produced in Uzbekistan. Over 170 km of transmission lines, substations, more than 180 km of pipelines of high and medium pressure, 237 km of fiber-optic communication lines, 150 km of roads and seven highway bridges across water bodies have been built specifically for the project.

The establishment of production of synthetic fuel under the brand Oltin Yo'l GTL (Golden Path GTL) is an extremely important initiative for the country in terms of innovative development. The project provides for the organization of unprecedented high-tech and innovative manufacture on the production of environmentally friendly synthetic liquid fuels, primarily diesel fuel and aviation kerosene of Euro-IV, Euro-V standards. Uzbekistan GTL company was founded in conjunction with the South African Sasol, Malaysian Petronas and Uzbekneftegaz NHC.

Twenty-four gas and gas condensate fields, including Shurtan, North Nishan, Jarkuduk and Beshkent will supply raw materials. The plant will process about 3.5 million tons of natural gas and produce 37,000 barrels of products per day.

It is worth to mention the fruitful cooperation with China. China National Petroleum Corporation is currently implementing a range of projects in Uzbekistan on exploration works in oil and gas regions of the republic, as well as the construction of the fourth line of Uzbekistan-China gas pipeline, which was intended to be a stable transit corridor for long-term supply of natural gas to China.

Interesting joint projects with the South Korean company of NK will cover all regions of the country. It is intending to establish the production of LPG equipment on the territory of Navoi FIEZ and build a regional network of service centers for installation of LPG equipment for cars. The production will work on innovative technologies of Total Gas Solution, which includes manufacture, installation, testing and filling of LPG equipment.

Energy-saving initiatives remain in focus as well. In the next four years Uzbekneftegaz is planning to implement 11 projects on optimization of energy consumption worth over $100 million. According to preliminary calculations, their implementation at the oil and gas facilities might save 100 million KW/h of electricity, 100,000 Gcal of thermal energy, produce additional 4 million KW/h of electricity for own needs.

Mini power plants will be installed in Yangi Qoratepa, Turtsari, Shirkent fields and Shurtan gas booster station. Through utilization of about 5.9 million cubic meters of associated gas they will allow producing 18 million kW/h of electricity. Up to 4 MW power will be generated under another project of mini power plants running on associated petroleum gas of Sardob deposit ($4.7 mln.). Installation of photovoltaic panels for electricity supply to Uzbekneftegazdobycha facilities will save 7,300 KW/h of electricity.

Uzbekistan joined the initiative to do away with gas flaring in the oil industry no later than by 2030. This is one of the priority areas of the ‘Program of Measures on Decreasing Energy Consumption, Introduction of Energy Saving Technologies and Systems in Economy and Social Sector for 2015-2019’.

A Program of Measures on Ensuring Structural Reforms, Modernization and Diversification of Production for 2015-2019 is seen as a platform for the future progress. It is expected that under the Program oil and gas and petrochemical industry will increase production volumes and expand the range of products with high added value through deep processing of natural gas and gas condensate.

It is planned to carry out a total of 124 investment projects on modernization, technical and technological extension of production, as well as 48 new promising investment projects involving foreign investors in the field of geology, fuel and energy complex, chemical, petrochemical and metallurgical industries. For instance, Uzbekneftegaz is intending to upgrade and reconstruct the Bukhara refinery capacities, build a gas chemical complex at the Mubarek Gas Processing Plant, new hydrocarbon pyrolysis plant on the basis of raw materials of Ustyurt GCC, the fourth branch of the Uzbekistan-China pipeline, expand the capacity of the Uzbekhimmash Plant for the manufacture of bulky large-scale petrochemical equipment (second stage), establish the production of plastic products, purchase high-tech exploration equipment, and other projects.

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