UZBEKISTAN - Russian & Chinese Roles.

With President Islam Karimov having improved ties with Russia and China, relations with the West are cool and the number of European and US companies having business in this country is very limited. The giant Russian gas monopoly Gazprom and LUKoil, the biggest oil producer in Russia are the main investors in Uzbekistan's petroleum E&P business. There come the state-owned China National Petroleum Corp. (CNPC) and Sinopec. UNG is a partner with these companies, and in some cases the state oil and gas group holds a minority stake.

President Karimov visited China on May 25-27, 2005, and it then was said CNPC was to invest $600m in developing oil and gas fields in Uzbekistan. Chinese firm Dong Sheng was then said to be investing $113m in a JV with UNG to rehabilitate oil and gas fields in the Andijon area and in exploring a block in the Ferghana Valley.

Gazprom is the main buyer of Uzbek of natural gas. In 2005 Gazprom bought 8.15 BCM of Uzbek gas, up from some 7 BCM in 2004, and in 2006 it is taking 9 BCM. The state pipeline firm UztransGaz on Oct. 12 said it will charge $100 per 1,000 CM of gas sold to Gazprom and others from Jan. 1, 2007, up from $55-$60 now. This will be in line with a price already being charged by Turkmenistan. The company said: "UztransGaz has officially informed its trading partners about the higher price for Uzbek gas".

The EU is watching Gazprom's dealings with Uzbekistan and other ex-Soviet states after Russia in early 2006 briefly disrupted gas supplies to Ukraine, the main transit route to Europe, in a row over gas prices. Some Uzbek gas reaches Ukraine (See Russia survey in gmt9RusGasExportAug28-06 & gmt10RusOverseas-Sep4-06).

The Russian business paper Kommersant on Jan.19, 2006, reported that Uzbekistan may sell three of its largest gas fields to Gazprom in exchange for "political protection". The paper claimed that, in exchange for the gas fields, Tashkent would receive a commitment from Moscow to defend Karimov's regime (see Gas Market Trends of this week).

Uzbekistan needs more than $25 billion to be spent on the upstream sector so that it could raise oil and condensate production to 1 million b/d and gas production to 100 BCM/year by 2012. For such investment to be made by foreign companies, the government will have to improve its E&P regime (see Gas Market Trends No. 15).

Uzbekistan is estimated to have less than 600m barrels of proven oil reserves, with 171 discovered oil and natural gas fields in the country. The Bukhara-Khiva region contains over 60% of Uzbekistan's known oil fields. These include the Kokdumalak field, which accounts for about 70% of the country's oil production. In addition, the Fergana region contains another 20% of the country's oilfields.

The Ustyurt plateau and the Aral Sea, which are rich in natural gas, have been targeted for further exploration and development. The fields in Kokdumalak, Shurtan, Olan, Urgin and South-Tandirchi - all in south-western Uzbekistan - are being developed further.

The government is offering production sharing agreements (PSAs) in over 80 of the oilfields which are officially estimated to have the potential of 1.2 bn barrels. Of these, 78 field are contained in 16 exploration blocks. There are also eight individual fields - four in the South-West Gissar Basin (Dzharkuduk, Gumbulak, South Kizilbairak, and South Tandircha) and four in the Amu-Darya region (North Shurtan, Shakarbulak, South Kemachi, and Umid).

It was announced on Oct. 12, 2006, that the state-owned UzbekGeofizika had signed a five-year agreement with TGS-NOPEC Geophysical Co. to convert the country's domestic hardcopy well log data assets into digital form. TGS-NOPEC's well log subsidiary, A2D Technologies, will undertake the project in partnership with UzbekGeofizika. The objective is to create a high quality commercial well log dataset which will ultimately be accessible worldwide via the Internet, which in turn will encourage investments in exploration in Uzbekistan.

Under the agreement, a joint A2D and UzbekGeofizika project team based in Tashkent will index and scan the country's hardcopy log assets. Once the indexing and scanning are complete, the logs will be available via LOG-LINE Plus, A2D's well data search and access portal. A2D's online database also contains well log data from Russia, West Africa, Madagascar, offshore North-West Europe, the US and Canada.

A2D Technologies, a TGS-NOPEC unit, says it is the energy industry's well log data marketplace offering "the largest online database, immediate delivery, conversion services, data management services and worldwide well log data sourcing". TGS is a global provider of multi-client geo-scientific data, associated products and services to the oil and gas industry.

UNG is trying to get Western investors to raise production in existing oilfields. A JV has been formed with Baker Hughes of the US to increase production of the North Urtabulak field. Baker Hughes is investing $8m in this venture and is expected to raise the field's production to more than 6,000 b/d. UNG has given Baker Hughes the option to develop the Adamtash, South Kemachi, and Umid fields, with total investment expected to be about $120m.

In 2001, Tashkent awarded licences to UzPEK, a subsidiary of Trinity Energy of the UK, to explore and develop fields in South-West Gissar and Central Ustyurt to produce oil and condensate. Under the PSA, UzPEK was committed to invest more than $420m over a 40-year period with $200m to be spent in the first five years. SoyuzNefteGaz, a Russian company, in July 2004 took control of UzPEK for an undisclosed amount. But a dispute between the government and Trinity Energy/UzPEK remains unresolved.

Under the PSA with UNG, UzPEK as operator obtained a 70% share of production. It was said in 2001 that the percentage may be increased if significant oil and condensate reserves were to be discovered. The block in Gissar has nine small oil and condensate fields. Their total reserves of oil do not exceed 15m tons. Experimental production of crude oil has been done at the Yuzhny-Kyzylbairak and Koshkuduk fields. Fields in the second block under the same PSA, in the Ustyurt region, include Urga and Shagarlyk. Urga, with gas reserves of over 45 BCM, has been under development since the mid-1990s. The other one has required supplementary exploration. Estimates of their reserves vary from a combined total of 10 BCM to 100 BCM of gas.

In this block, UzPEK has obtained an exploration licence for five years with the right to extend it for another three years. But Urga and other fields have since gone to Gazprom (see Gas Market Trends).

Aral Sea Consortium: Deputy Prime Minister Ergash Shoismatov on Aug. 30 announced a consortium to explore and develop oil and gas fields in the Uzbek part of the Aral Sea and adjacent Uzbek areas. This consists of UNG, LUKoil Overseas, Petronas of Malaysian, Korea National Oil Corp (KNOC) and China's CNPC.

The government is expected to receive 50% of oil and gas produced by the group. The members of the consortium are to get 10% each. The first three-year exploration stage and drilling of two exploration wells will require at least $99.8m. The PSA is valid for 35 years. The area covered by the PSA has estimated natural gas reserves of 1 TCM. No information on its oil reserves was announced.