Discoveries To Help Meet Export Demand
BMI View : Lukoil's gas discovery in the Shurdarye prospect is another boost to the country's gas industry. Any increase in production will help Uzbekistan meet an expected demand for its gas exports, particularly from China, which will come about with the expansion of the Central Asia-China gas transit pipeline that runs through Uzbekistan.
Lukoil announced that it has made a gas discovery in Uzbekistan. It hit a gas-saturated carbonate formation of Upper Jurassic age when drilling the Shurdarye prospect in its Southwest Gissar licence area. Well testing revealed commercial flow rates of up to 650,000 cubic metres of gas per day, with condensate output of about 513.1 barrels per day (b/d).
Shurdarye could add to Lukoil's commercial gas resources in the Southwest Gissar block, which is estimated to have over 770mn barrels of oil equivalent (boe) in place. The company, which operates the block, has made significant progress in exploration and production (E&P) within the block. In 2010, it discovered gas in the Southeast Kyzylbayrak and Shamoltegmas fields and flowed first gas from the Dzharkuduk-Yangi-Kyzylcha field - the largest in the block - in December 2011. It is currently working to commercialise gas resources in the large fields of Adamstash and Gumbulak. Further appraisal could lead to the commercial development of Shurdarye, adding to Lukoil's fortunes in the block and in Uzbekistan.
The privately-owned Russian company has four concessions in the country: Southwest Gissar, Aral, Kungrad and Kandym-Khauzak-Shady (KKS). Uzbekistan accounts for 54% of Lukoil's total marketable gas output outside Russia and it prides itself as the largest investor of the Uzbek economy. The latest discovery in Shurdarye is good news for Lukoil, as it seeks to diversify its assets beyond that of mature fields in Russia.
Not only is the gas find good news for Lukoil, it will also be much welcomed by Uzbekistan as it seeks to expand its oil and gas industry. Even though the industry dates back to the 1950s, it still has much latent potential to be tapped into. According to official Uzbek figures, only 25% of the country's total hydrocarbon resources have been extracted thus far, leaving much room for further E&P.
Uzbekistan's gas production is estimated to be about 65bn cubic metres (bcm) in 2011, of which domestic consumption accounted for about 72%. The remainder - which our estimates place at 18.15bcm - is exported, mainly to Russia.
|Relatively Small Export Volumes|
|Uzbekistan's Gas Production, Consumption And Exports, 2000-2012 (bcm)|
The landlocked country wishes to diversify its supply market away from Russia. It entered into a sales agreement with China in May 2012, under which it will export some 2-4bcm of gas to the latter in 2012 via a pipeline that runs through Turkmenistan, Kazakhstan and Uzbekistan (Central Asia-China transit pipeline). Uzbek officials would like to see pipeline exports to a gas-hungry China rise to 10bcm as early as 2013. It will be possible with the completion of the pipeline's Line B and the proposed addition of Line C, which will expand its capacity.
Lukoil shares the Uzbek state's interest in the Chinese market. Its deputy chief executive Leonid Fedun told Bloomberg in March 2012 that it is 'already supplying and will supply gas to China'. This will be achieved through the sale of gas to the Uzbek state, which is then sold to China under the May 2012 agreement.
For Uzbekistan, an increase in domestic production will help it meet its supply obligations to China without compromising on volumes delivered to Russia under sales purchase agreements with the latter's gas export monopoly Gazprom. It will allow the landlocked country to balance the influence of its traditional powerbroker Russia with that of China, without excessively offending the former.
Given that Uzbekistan remains underexplored, continued E&P from companies eager to capitalise on a growing Chinese supply market should raise its long-term gas production outlook. Husan Khasanov, representative from the Uzbek Ministry of Foreign Economic Relations, revealed in March 2012 that 'more than 60%' of the country's foreign investment is in oil and gas; capacity expansion of the Central Asian-China pipeline - opening up a new market for the landlocked country - has drawn companies to develop Uzbekistan's untapped resources.
|Rising Export Hopes|
|Forecasts For Uzbekistan's Gas Production, Consumption And Exports, 2012-2021 (bcm)|
We forecast that gas production will rise from an estimated 65bcm in 2011 to 86bcm in 2016 on the back of higher production from increasing investment from the likes of Lukoil, Petronas and China National Petroleum Corporation (CNPC). By 2021, the development of new fields uncovered should see output grow to 105bcm per year. With domestic gas demand expected to rise only 13.13bcm over our 10-year forecast period, this should leave the country with 45.02bcm of gas available for export by 2021.