Oil and gas industry of Uzbekistan: transition to market relations through transformation
Tashkent, Uzbekistan (UzDaily.com) -- By 2030, natural gas production in Uzbekistan is planned in the amount of 66.1 billion cubic meters. In turn, consumption will reach 56.5 billion cubic meters. m, which means a transition to the priority of meeting demand from domestic consumers and deep processing of natural gas as a raw material. In order to achieve this goal, the Ministry of Energy of the Republic of Uzbekistan is gradually implementing large-scale projects for the deep processing of natural gas and coordinating the processes of reforming the industry in order to increase its efficiency and transfer to market relations.
Reforming the oil and gas industry
The oil and gas industry, where about 1% of the employed population of the country works, is one of the main sources of GDP, budget revenues and foreign exchange earnings, and also plays a significant role in the structure of industrial production and attracting investment.
It is it that provides opportunities for the development of the economy, comfortable living for people, creating conditions for the normal functioning of priority sectors of the economy. However, maintaining the huge oil and gas infrastructure in normal working order, and even more so increasing the volume of natural gas production, meeting the needs of the population and the country’s economy, today is already impossible without transferring the sphere to the rails of a market economy.
The development of the oil and gas industry based on market laws will create conditions for competition, which makes it possible to increase the efficiency of production, transportation, processing, and most importantly, to ensure uninterrupted supply of natural gas to consumers. Also, it will make it possible to attract investors to the implementation of projects who have not only funds, but also modern technologies and experience.
The Ministry of Energy in its current form was established more than 2 years ago. Then a lot was said about this in the press, and at various meetings and meetings. I would not like to repeat myself too much, but in a nutshell, we can say that the main reason for the transformation was the lack of flexibility and inefficiency of the previous structures. Some of them did not correspond to modern tasks, such as a coordinated approach to the development of the fuel and energy complex; introduction of innovative management principles; building a healthy competitive environment and creating an attractive investment climate in our country.
Currently, the Ministry of Energy coordinates the development of the entire fuel and energy complex of Uzbekistan. The Ministry of Energy and the organizations included in its structure and coordination carry out state regulation of the processes of extraction, processing, transportation, distribution, sale and use of oil, gas and products of their processing, as well as the production, transmission, distribution and consumption of electric and thermal energy, coal.
These fundamental changes in the fuel and energy complex required a radical reform of the entire basic structure. In mid-2019, the process of reforming the oil and gas industry began, as a result of which the stage of its transformation has been completed by now.
A new organizational structure of Uzbekneftegaz has been formed, redundant intermediate links in the company’s management system have been reduced.
Uztransgaz was withdrawn from Uzbekneftegaz, which was determined as a single operator for the purchase of natural gas from gas production organizations for further transportation, including export and import, as well as sales to consumers connected to main gas pipelines.
On the basis of the territorial branches of gas supply of Uztransgaz, Khududgaztaminot was created to operate gas distribution networks and supply natural and liquefied gas to the population and social facilities.
The purpose of this reorganization is the transition to modern methods of organizing the production, transportation, processing and marketing of natural gas.
Over the period that has passed since the establishment of the Ministry of Energy, a number of cardinal changes have been made. In particular, in order to create a legal basis for the effective functioning of the oil and gas industry, the introduction of market mechanisms of relationships between market participants, together with international consultants, the development of the draft Law of the Republic of Uzbekistan "On Gas Supply" is being completed.
In June 2020, the "Concept for the provision of the Republic of Uzbekistan with oil and gas products for 2020-2030" was approved, developed by the Ministry of Energy together with the involved ministries, departments, as well as international consultants.
In June 2021, the Ministry of Energy, together with the involved ministries, departments, as well as international consultants, completed the development of the "Strategy for the transformation of Uztransgaz and the gas industry."
Our main task is to provide the country with oil and gas products, that is, to create such conditions when both the population and the economy as a whole are uninterruptedly supplied with natural gas and oil products. This means increasing production, modernizing the gas transmission system, improving metering and control of consumption. These tasks are challenging but doable.
Automation and digitalization
In the oil and gas industry, digitalization is seen as the main way to increase the competitiveness and profitability of a business.
Nearly all technological processes can be modeled and the most appropriate scenario can be selected in advance, rather than being on the spot by trial and error. Several hours of simulation replace months of testing, while providing an even more accurate representation of the formation properties. As a result, years of labor are saved, and oil recovery is increased by one and a half to two times.
In order to introduce modern information and communication technologies and ensure process automation, the Ministry of Energy, together with IKS Holding, is developing a Concept for the Comprehensive and Planned Development of Automation and Digitalization of the Fuel and Energy Complex of the Republic of Uzbekistan, taking into account the current and long-term business goals of the industry.
By the end of this year, the concept will be approved and from 2022 the implementation of the concept will begin.
By the end of this year, the concept will be approved and from 2022 the implementation of the concept will begin.
In accordance with the resolution of the President of the Republic of Uzbekistan from 9 July 2019 "On measures for the stable provision of the economy and the population with energy resources, financial recovery and improvement of the oil and gas industry management system" international financial institutions. International experts with extensive experience in reforming the oil and gas industries in various countries were involved.
Also, work will continue to improve the regulatory framework of the oil and gas industry. In particular, the work on the development of the Law of the Republic of Uzbekistan "On gas supply" is nearing completion.
Improving drilling efficiency
With the participation of "RLG International Inc." (Canada) Uzbekneftegaz implemented the first stage of the project "Improving the operational efficiency of drilling and workover of wells":"Diagnostics".
As part of the first stage of the Diagnostics project, the activities of Uzneftgaz-Kudukta’mirlash JSC and Uzneftegaz Burgulash Ishlari LLC and their work on drilling and workover of wells in the fields were studied, critically analyzed and assessed.
Based on the results of the analysis, recommendations were developed to optimize production costs and improve financial performance.
Currently, in order to implement the next stage of the "Implementation of a new system" of the project on the implementation of the recommendations developed within the 1st stage of the project, work is underway to organize project teams for Well Drilling and Workover.
Modernization of the gas transmission system
In order to reduce losses of natural gas, Uztransgaz began work on the modernization of the existing gas transmission system of Uzbekistan.
The "Program for the modernization and improvement of the efficiency of the gas transmission system of Uzbekistan for 2021-2022" was approved. According to this program, in 2021, 275 km of trunk pipes will be modernized for a total amount of US$300 million.
Today, the structure of the demand for energy resources is changing, in particular, during the transition from hydrocarbon resources to renewable energy sources, the issue of the development of hydrogen energy becomes urgent.
Hydrogen is an ideal source of energy and an environmentally friendly fuel. Its heat of combustion (1.17 GJ / kg) is almost three times higher than that of oil and four times that of coal or natural gas.
In order to increase the effectiveness of scientific and practical research in the fields of renewable and hydrogen energy, as well as to ensure the transition of the Republic of Uzbekistan to a "green" economy, a resolution of the President of the Republic of Uzbekistan of 09.04.2021 was adopted. №PP-5063 "On measures for the development of renewable and hydrogen energy in the Republic of Uzbekistan".
Together with the World Bank and international consultants, an assessment of the technical potential of the Republic of Uzbekistan for the production of "blue" hydrogen is planned in 2022, in the context of its comparative advantages and disadvantages, as well as the expected development of regional and global demand for low-carbon hydrogen. Based on the results of the study, a "Roadmap" will be developed for the development of "blue" and "green" hydrogen in Uzbekistan.
Also, in order to develop the hydrogen industry in 2022-2023, certain agreements were reached with foreign companies "Air Products", "Acwa Power" and "Siemens Energy" on the implementation of pilot projects in the republic, as well as the organization of short-term / long-term training programs with practical training in leading foreign technological objects of hydrogen energy.
Implementation of a modern corporate governance system and access to international financial markets
Entering international financial markets is relevant not only to the ability to gain access to relatively inexpensive financial resources, but also to the need to implement modern corporate governance systems with ensuring transparency and management efficiency.
In preparation for the initial public offering of Uzbekneftegaz shares on the international stock market (IPO) in order to attract a consulting company to implement a modern corporate governance system, work has begun with the international consulting company PricewaterhouseCoopers.
The activities of compliance inspectors have been established at departments (plants), enterprises, oil depots.
According to the international standard ISO 37001: 2016, certification processes are carried out for the implementation of an anti-corruption management system.
Corporate credit rating
In order to obtain a corporate credit rating, Uzbekneftegaz JSC, together with the international rating agencies Fitch, Moody’s and Standard & Poor’s and investment banks, carry out systematic work.
For the first time, Uzbekneftegaz JSC received an international corporate credit rating at the BB-level, assessed by the international credit agencies Fitch Ratings and S&P Global Ratings.
On 9 November 2021, for the first time, Uzbekneftegaz JSC successfully placed Eurobonds on the London Stock Exchange in the amount of US$700 million for a period of 7 years at 4.75%.
The company’s international bonds are distributed among more than 120 investors from the UK, USA, Germany, and Eurasian countries.
To issue the bonds, the organizing banks “CITI Group”, “JP Morgan (USA)”, “Mitsubishi UFG” (Japan) and JSC “Gazprombank” (RF) were attracted.
The funds received from Eurobonds will be directed primarily to events and promising projects aimed at increasing the volume of hydrocarbon production and processing.
Reforms in the oil and gas sector should be aimed at a result that will ensure the satisfaction of the growing needs of consumers in the oil and gas industry while maintaining a balance of economic interests of suppliers and consumers.
Taking into account the forecast for the growth of natural gas consumption to 56.5 billion cubic meters by 2030, the main task of the Ministry of Energy is to take a set of measures to meet the growing demand.
For this, the following measures will be taken:
- increasing the energy efficiency of the economy by stimulating the use of energy efficient technologies, machinery and equipment;
- further development of the introduction of market mechanisms and the creation of equal conditions for doing business for all market participants, regardless of the form of ownership;
- increasing the efficiency of work in the areas of geological exploration, production, transportation, processing and sale of hydrocarbons, through the introduction of innovative technologies, modern principles of corporate governance;
- development of the hydrocarbon-raw material base of the industry’s enterprises due to the geologist’s exploration work in the oil-and-gas regions of the country;
- maintaining the required volumes of hydrocarbon production through the introduction of new explored and previously mothballed fields;
- increasing the volume of hydrocarbon production at fields with long-term developed reserves, with the involvement of internationally recognized companies on the terms of a risk service contract.
The petrochemical industry is characterized by significantly greater stability and growth rates compared to most other industries, and at this stage is one of the most strategic in terms of the economy of Uzbekistan. Expansion of natural gas processing will significantly increase profitability, will contribute to the introduction of modern technologies and the creation of new jobs. Large investment projects will be implemented in this direction:
By the end of the year, a plant for the production of synthetic liquid fuel based on purified methane from the Shurtan Gas Chemical Complex will be commissioned. As a result, capacities for the production of 311 thousand tons will be created. kerosene, 743 thousand tons diesel fuel 435 thousand tons. Naphtha and 53.4 thousand tons. liquefied gas.
The project continues to expand the production capacity of the Shurtan Gas Chemical Complex to 280 thousand tons. polyethylene and 100 thousand tons. polypropylene per year.
In 2024, the production capacities of the Bukhara oil refinery will be modernized, which will make it possible to establish production of 1.75 million tons. Petroleum products of Euro 5 standard.
In 2026, through the implementation of the project for additional exploration and development of the Mutakillikning 25 Yilligi field with the construction of a gas chemical complex in the Surkhandarya region, 500 thousand tons will be produced. polymer products per year.
Also, until 2026, it is planned to create a gas chemical cluster based on MTO technology with the creation of production facilities for the production of 1.1 million tons. gas chemical products.
The projects introduced in the country to expand the processing of oil and gas products will contribute to the implementation of the task set for the oil and gas sector of Uzbekistan.