Uzbekistan Banks on Russian Oil for New Refinery
Uzbekistan revealed in late April that it had begun building a new $2.2 billion oil refinery that would produce fuel for sale domestically and abroad.
Official news sources stated perfunctorily that oil supply agreements had already been reached with Kazakhstan and Russia, although the finer details still in fact need to be decided.
The ambition is formidable.
The refinery being built in the Jizzakh province, which lies adjacent to the South Kazakhstan Region, is being designed to process up to 5 million tons of oil annually, an almost 50 percent increase on Uzbekistan’s existing refining capacity. It will when completed turn out 3.7 million tons of gasoline, more than 700,000 tons of aviation fuel and 300,000 tons of associated products. Completion of the project is slated for 2022.
The location was chosen with supplies from the north in mind. A representative with state-owned holding company Uzbekneftegaz told RIA-Novosti news agency earlier this month that a 95-kilometer pipeline is to be built to plug into an existing route from Siberia to southern Kazakhstan.
“We have agreed with Kazakhstan to extend the [3,100-kilometer] Omsk-Pavlodar-Shymkent pipeline into our territory. It will be sufficient to build 95 kilometers worth of pipeline, and then [5 million tons of oil per year] will flow into Uzbekistan," the company representative said.
The unnamed Uzbekneftegaz official may have been running ahead of himself by implying that all the oil for the Jizzakh refinery would come from Russia and Kazakhstan, but the remarks are suggestive all the same.
Building the pipeline will obviate the current reliance of railway transportation and should bring down costs substantially. Uzbekneftegaz estimates that it currently bears costs of between $150 and $250 for every ton of oil imported into Uzbekistan by train.
Uzbekistan already has three refineries — Alty–Aryk NPZ, Ferghana NPZ and Bukhara NPZ — that can collectively process up to around 11 million tons of oil. In planning that certainly made more sense in Soviet times, when all the Central Asian republics had closely integrated economies, Alty–Aryk NPZ and Ferghana NPZ were built a mere 30 kilometers from one another, positioned conveniently in the regionally central Ferghana Valley. As a result, the sight of convoys of oil trucks plying their way from central Uzbekistan to the Ferghana Valley, day and night, has long been a common one. Notably, the convoys are routinely accompanied by police cars, not so much for their protection, say people living along the route, but to ensure the truck drivers are not tempted to pilfer fuel as a way of supplementing their income.
The figures for capacity at those refineries is only theoretical, however. At the moment, shortage of crude supplies means that the plants are only operating at 60 percent of their potential. The knock-on effect of that are the regular gasoline shortages that blight the lives of the country’s motorists. That in turn has led to the flourishing of a vibrant black market trade that enriches black market traders but hits regular people hard in the pocket.
President Shavkat Mirziyoyev has already reached tentative agreements with Russia and Kazakhstan separately on the future supply of oil.
But that issue is still object of some discussions between officials in those nations. The energy ministers of Russia and Kazakhstan met in Moscow on May 25 to discuss the question of Kazakhstan serving as a transit point for Russian oil, and how exactly that would happen.
Inevitably, there is some politics involved. Back in April, one analyst speaking to Russian news agency Sputnik said that work was underway in Moscow on finding a way to supply Uzbekistan with duty-free oil, but only on condition Tashkent agrees to entertain joining the Russian-dominated Eurasian Economic Union.
“This project [to supply Russian oil] is promising because Uzbekistan could become a full-fledged member of the [Eurasian Economic Union]. That is the context in which there are discussions going on about the delivery of levy-free Russian oil in relatively small amounts,” said Alexander Pasechnik, an analyst with the Moscow-based National Energy Security Fund think tank.
Still, the Pavlodar-Shymkent pipeline is pumping well below its design capacity — around 25 million tons of oil annually — which gives Uzbekistan some leeway for negotiation. Even once the overhaul of Kazakhstan’s three refineries is completed, annual oil processing capacity there will, to go by remarks made by Energy Minister Kanat Bozumbayev in March, reach 17.5 million tons. And one of those refineries, in Atyrau, draws its crude supplies from reserves in western Kazakhstan and therefore has no impact on the Pavlodar-Shymkent route.
If Uzbekistan can really bring its new refinery online within the promised timeframe, this all makes for a promising picture, but it would be naive not to expect some bumps along the way.