Dependence on Russia May Endanger Uzbekistan’s Energy Independence (Article)

Based on the preliminary results, the Central Election Commission of Uzbekistan declared the country’s President Shavkat Mirziyoyev the winner, upon his re-election with an overwhelming majority of 87.1%, with a strong turnout of more than 15 million voters who cast their ballots on Sunday 9 July.

Mirziyoyev, the powerful leader of Central Asia’s most populous country since 2016, has called early elections after organizing a constitutional amendment through a public referendum.

This decisive amendment redefined his term of office and presidential terms from 5 to 7 years. What strengthened his term of office.

It should be noted that Mirziyoyev assumed the position of prime minister under his predecessor, Islam Karimov, before assuming the presidency, and gained important experience in the complexities of the political and administrative scene in Uzbekistan.

After the presidential elections, the victory of President Shavkat Mirziyoyev marks the beginning of a new era for Uzbekistan.

The success of President Mirziyoyev’s vision of a “new Uzbekistan” depends to a large extent on the effective and sustainable management of the country’s fossil fuel sector.

and then; His re-election marks a critical turning point for the energy sector in Uzbekistan, and is an opportunity to transform the country’s energy landscape and secure economic prosperity in the rapidly evolving global energy landscape.

His pledge to double the country’s gross domestic product to $160 billion in the near future hinges largely on the trajectory of the country’s oil and gas sector; What requires a strategic re-evaluation in the face of contemporary challenges.

conventional oil production

It is important to note that conventional oil production in Uzbekistan peaked in the early 2000s, after which there has been a steady decline.

In fiscal 2019, the country reported strong gas condensate production; It amounted to 2.1 million tons.

This number led to the doubling of conventional oil production 3 times in the same year. This indicates a strong performance in this sector.

In addition to its domestic oil production, Uzbekistan supplements its oil needs by importing additional crude oil, which constitutes about 30% of the total inputs to its refineries, as recorded in 2018.

The refinery output largely meets the demand of the local market, with small quantities allowed to be exported (0.13 million tons in 2018).

As it is currently the case, the main export destinations for Uzbekistan’s energy commodities are China, Russia and Kazakhstan, and these countries form an important part of the country’s external energy market.

Looking to the future, Uzbekistan’s currently certified oil and gas reserves are expected to last for 20 to 30 years, according to a report by Uzbekistan’s Gazeta.

Uzbekistan is among the world’s largest producers of natural gas; It annually produces approximately 60 billion cubic meters; Evidence of strong export capabilities.

Since the early 2000s, Uzbekistan has been exporting 10-15 billion cubic meters of natural gas annually to China, Russia, Kazakhstan and other Central Asian countries.

In 2020, Uzbekistan was exporting gas to China, but domestic dissatisfaction with power outages across the country has led to these exports being halted, redirecting more energy to domestic consumption.

The following graphic, prepared by the Specialized Energy Platform, shows oil and gas condensate production in Uzbekistan:

The repercussions of Western sanctions on Russia

Like other Central Asian countries, Uzbekistan is suffering from the repercussions of Western sanctions on Russia, its longtime trading partner.

As a historical energy exporter, Uzbekistan’s role has shifted to an energy consumer, relying heavily on Russian hydrocarbons.

This dependence is increasing as Moscow reorients exports away from the sanctioned West.

According to the British BP report for 2021, and according to current consumption rates, gas reserves in Uzbekistan will last for only 18 years, and oil for about 35 years.

Hence, it becomes necessary for Uzbekistan to secure its energy future.

To hedge against potential winter shortages, Uzbekistan negotiated a deal with Russia’s Gazprom to buy 2.8 billion cubic meters of natural gas annually over the next two years.

Moreover; This new dependence on Russian energy imports has incited critics who say it could jeopardize Uzbekistan’s energy independence.

“The assertion that Uzbekistan has transferred its exclusive rights to all its oil and gas fields to Russia is categorically wrong,” the Minister of Energy of the Republic of Uzbekistan said in an unequivocal statement.

On June 19, the Ministry of Energy issued an official statement stating that daily shipments, which amount to about 9 million cubic meters of gas, will start from October 1.

The ministry further noted that the tariff structure will be calibrated according to prevailing market rates and local prices within Uzbekistan.

In turn, the logistics of this gas supply entail pumping gas through Kazakhstan through the Central Asia Gas Pipeline.

This canal, historically used to transport gas from the south to the north, will play a pivotal role in ensuring the smooth and efficient delivery of gas from Russia to Uzbekistan.

Although the current deal falls short of the expected quota of 6 billion cubic meters per year that Russian media speculated earlier this month; They mark a significant breakthrough in Moscow’s previously tense efforts to negotiate gas sales with buyers from Central Asia.

The following graphic, prepared by the Specialized Energy Platform, shows natural gas production and consumption in Uzbekistan:

Gas trilogy

Amid this crisis, Russia proposed a “gas trio” – a tripartite gas trade union comprising Kazakhstan and Uzbekistan – and after initial skepticism, Uzbek officials were open to the idea.

After agreeing to explore the possibility of changing gas flows in the Central Asia Pipeline (CAC), deliveries seemed imminent.

On the other hand, this arrangement involves fundamental changes to the infrastructure, and requires the construction of a new gas metering station by September, in addition to the modernization of 3 gas pumping stations and the addition of 22 kilometers to the pipeline network.

These developments have broader implications for the region, and Russia’s pivot to gas imports and exports from Central Asia could reshape regional energy dynamics.

This raises the question of why Uzbekistan did not buy gas directly from neighboring Turkmenistan when the supply arrangement was in effect until mid-January. It was halted due to technical complications caused by severe weather conditions.

Given the continuation of the ongoing deal between Gazprom and Turkmenistan until 2024; Central Asian buyers outside Uzbekistan are expected to import; including Kazakhstan and Kyrgyzstan, Gazprom fuel; This creates a complex web of energy dependence.

Given these problems, Uzbekistan can meet its domestic needs through Russian imports, provided there is no unexpected surge in demand.

Energy market expert Sergey Kondratyev expects that the domestic demand for gas in Uzbekistan will rise to 51-52 billion cubic meters in 2023, compared to 48.4 billion cubic meters in 2022. Hence, the country’s energy landscape is facing major changes.

To reduce its dependence on Russian energy supplies, Uzbekistan has taken commendable steps.

Oil liberalization in 2020, gas liberalization in 2019, and the goal of full gas liberalization by 2026 are measures to make the energy economy resilient against external shocks and internal depletion.

These steps confirm Uzbekistan’s commitment to a secure energy future, and also pave the way for a new era of sustainable energy for the country.

Amid the growth of the country’s population, the demand for natural gas is expected to increase by 30% to 65 billion cubic meters by 2030.

The following drawing – prepared by the specialized energy platform – shows the production of some oil derivatives in Uzbekistan:

The efficient use of gas, along with the development of the country’s solar and wind energy potential, can secure the energy future and contribute to global climate change mitigation efforts.

To reduce its dependence on Russian energy supplies, Uzbekistan has taken steps to liberalize its oil sector (2020) and gas liberalization (2019), and aims to fully liberalize gas by 2026.

These measures aim to make the energy economy more resilient to external factors, and industry experts and business leaders welcome the internal shocks and drains.

The implementation of Uzbekistan’s policies will increase gas production to 42.3 billion cubic meters in 2024, as well as attract investments for exploration and production of at least $1.8 billion by 2024.

Production of petroleum products is set to increase 2.1-fold to 3.2 million tons annually by 2024, and liquefied gas to 1.5 million tons.

By promoting the efficient use of gas and harnessing the country’s great potential in solar and wind energy, Uzbekistan can secure its energy future.

* Velina Chakarova is a political affairs specialist in energy-producing countries.

*This article represents the opinion of the author, and does not necessarily reflect the opinion of the energy platform.