Regional Report: Central Asia’s downstream assets

Central Asia’s importance lies primarily in its strategic location. It is wedged between Russia and China, but also draws the interest of the US, EU and Turkey. In international comparison, the Central Asian countries are relatively small and poor.

This article focuses on the downstream sector in Central Asia. While the upstream and pipeline sectors have boomed, downstream has developed more slowly. But as Central Asia throws off its traditional dependence on Russia and opens to new markets in Asia and Europe, its economies are evolving and there is growing space for high quality fuels. As the countries of the region seek to take a more prominent place in the world, they will be better positioned to develop their domestic economies.

Hydrocarbon reserves

Kazakhstan has the largest oil reserves in Central Asia, with rapidly growing production, and large supplies of natural gas as well. According to BP, it has 39.8 billion bbls of oil reserves, with a reserves to production (R/P) ratio of 64.9 and 1.82 trillion m³ in gas reserves, with a R/P of 56.6. Turkmenistan is the largest gas producer in Central Asia. BP now estimates that natural gas reserves are 8.10 trillion m³. Uzbekistan has natural gas reserves of 1.68 trillion m³ with an R/P ratio of 26.1. It also has 0.6 billion bbls of oil (R/P 15.2).

Supply/demand relations

The main story in the key Central Asian producer states is that production is now rapidly outpacing consumption, leaving plenty of room for exports. Thanks to the foreign participation, Kazakhstan’s oil production has grown rapidly from 744 000 bpd in 2000 to 1 682 000 bpd in 2009. However, consumption has remained relatively flat, moving from 158 000 bpd in 2000 to 260 000 bpd in 2009, as the country has relied heavily on the energy sector for its growth. Gas production expanded from 10.4 billion m³ in 2000 to 32.2 billion m³ in 2009.

Despite some opening following Turkmenistan’s leadership change, outside observers have a difficult time gauging energy use in the country. Domestic consumption in Turkmenistan has grown from 12.2 billion m³ in 2000 to 19.8 billion m³ in 2009.

Uzbekistan’s oil production has been dropping since 1999, going from 191 000 bpd then to just 107 000 bpd in 2009. Luckily for the country, this crisis occurred just as international prices were starting an upward trajectory. In line with the declines in production, oil demand has nearly halved in Uzbekistan, dropping from 138 000 bpd in 1999 to 101 000 bpd in 2009. Uzbekistan’s natural gas production has grown steadily from 51.1 billion m³ in 2000 to 64.4 billion m³ in 2009, with particularly rapid gains beginning in 2007.

Central Asian refining industry

The Central Asian refining sector has not developed nearly as quickly as other parts of the energy industry since the collapse of the Soviet Union. Because the Central Asian governments subsidise local energy prices, producers have a strong incentive to export crude oil and gas to foreign markets.

Kazakhstan has three major oil refineries that had a total capacity of 345 100 as of January 2009. These plants refined approximately 193 000 bpd in 2007, but that figure jumped significantly to 232 900 bpd for the first nine months of 2009.

Turkmenistan has two refineries with a total capacity of 237 000 bpd. They are located in Turkmenbashi, a port on the Caspian Sea, and in Seidi, near the border with Uzbekistan. The government controlled TurkmenNefteGaz owns them both.

Uzbekistan has the ability to refine 222 000 bpd of crude oil. This work takes place in three refineries, at Alty-Arik, Buchara and Ferghana. The refineries are part of Uznefteprodukt, the state controlled company.

Conclusion

While production of hydrocarbons is quickly expanding in Central Asia, downstream activities have had great difficulty keeping up. Part of the problem is that energy production is increasing much more quickly than the rest of the economy in these countries. Additionally, extensive government subsidies keep down energy prices, making local politicians popular with residents, but depriving investors of incentives to develop oil refineries and gas processing plants to serve the local markets.

You can read the full article ‘Central Asia Asserts Itself’ by Robert Orttung in the December 2010 issue of Hydrocarbon Engineering

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/29112010/regional_report_central_asias_downstream_assets/