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UZBEKISTAN - The Global Petroleum Perspective.

The world oil market is in contango, with WTI at NYMEX having closed the week on Oct. 6 at $59.76/b, down from a record of $78.40 on July 14. Brent at ICE had a $78.64 peak in August. Prices are fall-ing to a $40-50 range (omt14TurkmExptOct2-06). But the long-term perspective for OPEC is not so bad as January 2007 WTI on Oct. 6 closed at $62.23 and at $61.07 for December 2012 - with January 2008 WTI at $66.77.

OPEC President Edmund Daukoru, Nigeria's minister of state for petroleum, on Oct. 6 said his aim was to get a deal by Oct. 9 to remove 1m b/d of crude oil from oversupplied markets and brake a rapid fall in prices. He said brimming fuel stocks around the world had already prompted most of OPEC's 11 members, including Saudi Arabia, to make voluntary cutbacks. Iran, OPEC's second biggest producer, the UAE third largest and Qatar had yet to make a public commitment. Iraq is not bound by OPEC quotas and Indonesia is a net importer. Reuters on Oct. 7 quoted Daukoru as saying: "By Monday a consensus will emerge, I hope. We have to respect each member country's views. The process of consultation is not a matter of a couple of hours". He said there was no decision yet to hold an emergency OPEC ministerial meeting later this month ahead of a scheduled conference on Dec. 14 in Nigeria.

Reuters on Oct. 6 quoted US Energy Secretary Sam Bodman as saying he would tell OPEC ministers the world still needed all the crude oil the group could produce heading into winter. He said at $60 crude oil was near record highs.

Nine OPEC states will cut their "fair share" from overall OPEC production, on Oct. 1 averaged almost 30m b/d. Saudi Aramco was to cut its output 300,000 b/d from September's 9.2m b/d, taking the kingdom's production to its lowest since May 2004. This will be OPEC's first output cut since April 2004. Oil prices have tripled since the start of 2002.

European Central Bank President Jean-Claude Trichet on Oct 5 said OPEC's decision may damage the world economy. Naving announced a rise in interest rates, Trichet distinguished between oil price hikes driven by the market and those driven by administrative decisions, saying: "You have a very dynamic glo bal economy that triggers demand and that demand increases the price of oil and then you have a phenomenon...that is well founded because it is really commended by supply and demand". But he said oil price rises triggered by OPEC supply cuts produced global economic slowdowns and inflation spikes in the 1970s in two "oil shocks", adding: "It is a different case when you have something more artificial, which is based on an administrative decision. It was the case with the first oil shock and it was also the case for the second oil shock and these administrative decisions are of course of a totally different nature. I am not...satisfied by administrative decisions".

OPEC output cuts mean freight rates for very large crude oil carriers (VLCCs) working the benchmark Middle East-Japan (TD3) route could fall 30-40% for November bookings. The Oct. 5 Baltic Exchange rate settled at WS85, the lowest level in more than four months, and was talked at WS75 on Oct. 6. There could be a slide to WS50-WS60. Reuters on Oct. 7 quoted a Singapore-based shipbroker: "It's free falling, just like the Tom Petty song rates are totally out of sync with the trend of the past two years when freight earnings in the fourth-quarter were very solid. Less oil to move means less tanker bookings, and more supply in the market - shipowners don't make any money if their tankers don't get booked".

Freight rates on the TD3 route have fallen 34% since Sept. 21, and are about 12% below year-ago levels, though they remain well above a low of WS28 in 2002. The market has been depressed by distillate stocks in the US holding out at seven-year highs. A series of refinery run cuts in Asia, taking more than 160,000 b/d of capacity offline, has limited crude oil loadings from the Middle East, leaving an excess of quality tonnage supply in the market. US crude oil imports at end-September were 10.513m b/d, as at end-August.

Uzbekistan's petroleum potentials, including reserves in the Ferghana Valley, have attracted less attention from foreign investors than in the case of Kazakhstan or Azerbaijan. This is mainly because foreign companies are less interested in a landlocked country like Uzbekistan, which is far from existing outlets to the major markets for oil and gas.

Another major reason is the cautious nature of the Uzbek government, which tends to be wary of foreign motives, with its vague legal and regulatory system discouraging potential investors (see OMT of this week).

Uzbekistan's oil reserves are estimated independently at less than 600m barrels. Its proven reserves of natural gas have been estimated at 1.85 TCM (65.3 TCF), with BP in 2004 putting them at 22.2 TCF (0.63 TCM). Its proven reserves of coal are 1,476m tons of oil equivalent. The country's hydro-electric potential is less than 1,700 MW.It energy sector is inefficient, with a great deal of waste resulting from an unsustainable government policy (see Downstream Trends of this week).

Uzbekistan's petroleum reserves are from 171 discovered oil and gas fields. Among these, crude oil is produced at 51 fields, natural gas at 27 fields, and condensate at 17 fields. The Bukhara-Khiva region contains over 60% of Uzbekistan's known oilfields, including the Kokdumalak field, which accounts for about 70% of the country's crude oil output.

The Ferghana region contains another 20% of the country's oilfields. This as well as the Ustyurt plateau and the Aral Sea have been targeted for further exploration.

The richest natural gas district is in the Uzbek section of the Ustyurt Basin. Uzbekistan is the third largest natural gas producer in the CIS and one of the top ten gas-producing countries in the world. Since becoming independent, Uzbekistan has raised gas production from 42.8 BCM in 1992 to almost 59.7 BCM in 2005, compared to 32.3 BCM in 1985. The output in 2006 is expected to reach or exceed 60 BCM. Most gas production is concentrated in 12 deposits, particularly in fields such as Shurtan and Kokdumalak.

The fields in Kokdumalak, Shurtan, Olan, Urgin Snd south-Tandirchi - all in south-western Uzbekistan - are being developed rapidly.

Uzbekistan's oil and condensate production has been declining in the past few years, now averaging 111,000 b/d compared to a peak of 191,000 b/d in 1998 and 1999. Most of the existing fields are being depleted faster than new commercial reserves are discovered. UzbekNefteGaz (UNG), the state-owned oil and gas company which is integrated, expects liquid hydrocarbon production in the country to fall to 100,000 b/d in 2007/08.

In an effort to stem the decline in production, the government is seeking foreign investment in its oil and gas resources. Since independence in 1991, the government has invested about $2 bn in the entire petroleum sector, mostly borrowed from commercial banks and export credit agencies.
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Publication:APS Review Oil Market Trends
Date:Oct 9, 2006
Previous Article:UZBEKISTAN - Shift From West.
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