Uzbekistan Oil & Gas Report Q2 2014
Conventional gas deposits would support Uzbekistan's hydrocarbons industry, though we project a continued decline in oil production. Consumption growth in both oil and gas will be curtailed by the diversion of gas to external markets to meet its export obligations, a failure to meet its domestic refined products demand and restrictions on fuel imports.
The main trends and developments in Uzbekistan's oil and gas sector are:
- We have forecast a very gradual decline in oil reserves, with 481.5mn barrels (bbl) forecast to remain by 2023, down from the EIA's forecast of 594.0mn bbl for 2013. The outlook is slightly better for gas. Some discoveries and exploration activity would keep gas reserves stagnant at about 1.8trn cubic metres (tcm) through to 2018, though Uzbekistan would need to speed up the rate of exploration and discovery should it wish to prevent a fall in gas reserves to about 1.72tcm by 2023.
- Uzbekistan has an estimated 340bn bbl of oil shale deposits and Uzbekneftegaz has established a US $600mn joint venture (JV) project that will convert the oil shale into crude oil to be processed into petroleum products. It has started first drilling at the Sangruntau deposit in March 2013, and is aiming to produce 2mn tonnes per annum (tpa) of liquids from oil shale (40,164 barrels per day, or b/d) between 2014 and 2015 and 8mn tpa (160,656b/d) by 2018 from the Sangrantau deposit alone. It has also started studying reserve potential at areas in the Kyzylkum desert and Baisun Mountains; however, we have not factored this in our forecast until the success of its first development is proven.
- Without early success in enhanced recovery, shale-based production and/or new field development, we believe crude oil supply - including lease condensate but excluding natural gas liquids (NGL) - will decline to 58,700/d by 2018. However, additional natural gas liquids (NGL) volume - thanks to an expected increase in gas output - should moderate this decline, and see total liquids output fall to a lesser extent to 89,920b/d in 2018. By 2023, increase in NGL production would see liquids output partially supported at about 84,280b/d.
- Low operating rates at Uzbek refineries will likely help see net crude oil exports rise slightly from an estimate of 16,960b/d in 2013 to 18,730b/d in 2018. However, the effect of falling crude oil production could soon exceed that of lower refinery demand and lead to a downward fall in exports to 16,580b/d by 2023. An expansion in Uzbekistan's refining capacity poses a downside risk to this outlook.
- The lack of domestic refined oil production will limit gains in domestic consumption. We are forecasting a relatively slow growth in oil consumption from 106,000b/d in 2012 to 109,240b/d in 2018, rising gradually to 112,000 by 2023. This would also see the country's net refined oil imports rise from an estimate of 28,580b/d in 2013 to 44,300b/d by 2023. If the Uzbek government persists with fuel import restrictions without upgrading the country's state-owned refineries or attracting private downstream investment, demand could be suppressed further.
- The latest available official data from the EIA show that gas production fell by about 1% to 62.2bcm in 2012. However, based on optimistic data released by producers Gazprom and Lukoil, we expect to have seen a slight increase in Uzbek gas production to 62.8bcm in 2013. We expect output to rise thereafter to 71.1bcm by 2018 as new fields enter production. By 2023, output is expected to hit 78.5bcm. Risk appears to be to the upside in terms of output, thanks to the combined efforts of domestic and international companies, plus infrastructure expansion and rising regional demand for Uzbek gas.
- Domestic consumption is expected to fall from an estimate of 52.6bcm in 2013 to 51.1bcm in 2015, though it could increase faster if and when Uzbekistan ends its long-term supply deal with Gazprom. Beyond that, consumption will follow what is available after Uzbekistan's export obligations to China have been met, allowing for 10.1bcm of export capacity by 2018. We warn that a long-term increase in domestic gas demand will be constrained by Uzbekistan's export obligations, particularly those with China.
Uzbekistan's dependence on oil prices leads to high volatility in the country's oil and gas export revenues. At the time of writing, we assumed an OPEC basket oil price for 2014 of US$101.80 per barrel (bbl), falling to US$100/bbl in 2015. Overall, we are forecasting 3.2% global real GDP growth in 2014, up from 2.6% in 2013. This will be driven by significant acceleration in developed state growth, to 2.0% from 1.2% in 2013, and in contrast to the modest improvement in emerging markets to 4.9% from 4.6%. For 2015, growth is projected at 3.3%.
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