WILL A NEW GAS FIELD REVIVE UZBEKISTAN’S ENERGY SECTOR?

Official data suggest that Uzbekistan’s energy sector experienced growing problems in 2000. Although 3 percent growth in electricity production was reported last year, natural gas output remained flat, and oil production dropped nearly 8 percent. In addition to casting doubt on the 6.4 percent growth in overall industrial output reported last year, the trends behind these figures suggest that Uzbekistan’s economic problems could sharpen in 2001.

Natural gas is the key to Uzbekistan’s energy sector. Uzbekistan is the third largest natural gas producer in the CIS, and one of the top ten gas-producing countries in the world. While most of Uzbekistan’s gas is consumed domestically, exports to neighboring CIS countries–particularly southern Kazakhstan, Kyrgyzstan, and Tajikistan–provide significant export revenues. But despite soaring world market gas prices, Tashkent reported only 1.5 percent growth in natural gas output last year. This trend could put at risk Uzbekistan’s contract to deliver 820 million cubic meters of gas to southern Kazakhstan (including Almaty) in 2001, and further aggravate Uzbekistan’s already complicated foreign trade picture.

The Shurtan gas field, Uzbekistan’s country’s largest, could be the key to reversing these trends. In February 2001, a consortium of foreign banks led by ABN Amro and the U.S. Eximbank agreed to lend US$195 million to Uzbekneftegaz (the national oil and gas company) to finance the construction of a compressor station at Shurtan. The new compressor is expected to push Shurtan’s annual output to 20 billion cubic meters (bcm), up from 15 bcm in 2000 (Russian agencies, February 25). In addition, Uzbekneftegaz has announced that the Shurtan Gas Chemical Complex, which cost US$1 billion to construct, will be operational by mid-2001. The complex includes a plant designed to produce 125 thousand tons of polyethylene annually, 137 thousand tons of liquefied gas and 130 thousand tons of volatile condensate per year, as well as a gas purification installation. An international consortium led by ABB and three Japanese companies supplied the equipment for the complex on a turnkey basis, while Uzbekistan’s building companies handled general construction.

Shurtan’s polyethylene production facility, which is the first in Uzbekistan and in all of Central Asia, is a leading example of Tashkent’s economic growth strategy emphasizing import substitution. Uzbekistan until now has imported up to 60,000 tons of polyethylene and other polymers annually, mostly from Russia and China (Russian agencies, February 11). By boosting domestic petrochemical production, Shurtan could save Uzbekistan hundreds of millions of dollars in import costs. But if the anticipated increase in gas production does not come on line, Uzbekistan could find itself without the export revenues needed to pay off the US$195 million loan.

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