Aral
Sea challenge to Kazakhstan By
Farkhad Sharip
As a part of Lukoil's
incessant attempts to consolidate its presence in
the energy sector of Central Asia, on January 17,
the Russian company's board of executives endorsed
the purchase by its daughter company, Lukoil
Overseas, of 6.6% of shares in the transnational
Aral Sea Operating Company.
Aral Sea
Operating Co was set up in 2006 to explore and
develop Uzbekistan's oil and gas fields in the
Aral Sea on a product sharing agreement basis.
With the additional acquisition, the Russian share
in the transnational Aral project joined by
Uzbekistan's Uzneftegaz national holding, Chinese
CNPC International, South Korean KNOC Aral and
Russian Lukoil Company totals 26.6%. The 6.6% of
shares purchased by Lukoil
earlier belonged to
Malaysian Petronas Company, which abandoned the
project in 2011.
Some experts believe that
if the project is implemented successfully, the
Aral sector of Uzbekistan may become more
attractive for investors than the Caspian oil and
gas fields of Kazakhstan. But so far its
achievements look very modest.
Over the
past six years, slightly over US$110 million were
invested in the project. Initially, Uzbekistan's
sector in the Aral Sea was estimated to hold
around 31% of the oil and 40% of the natural gas
reserves of Central Asia, which potentially would
make Uzbekistan the second-largest oil producer in
the region, rivaling Kazakhstan.
It seems
that Gazprom chose the correct political moment to
make forays into hydrocarbon reserves after the
brutally quenched Andijan riots of 2005. In 2010,
Gazprom Zarubezhneftegaz, a subsidiary of Gazprom,
funneled US$200 million into prospective drilling
of the Ustyurt fields in Uzbekistan, but with no
significant results. Uzbek experts forecast gas
reserves in Aral deposits at 470 billion cubic
meters.
But Russians, after repeated
failures to confirm these estimates, are becoming
skeptical. The only plausible explanation for
their staying in the Aral project seems to be the
reluctance of Moscow to lose its dominant position
in Uzbekistan's oil and gas sector.
Given
the deepening mistrust between Russia and China,
another important actor in Uzbekistan's energy
sector, Russian participation in the Aral project
pursues political interests rather than purely
economic pragmatism. The Central Asian nations
continue to seek hydrocarbon export routes that
circumvent Russia. Too much independence by these
countries, which possess 22 billion cubic meters
of discovered gas reserves comprising 12% of world
gas deposits, would be favorable to Beijing and
deal a heavy blow to Moscow's key interests.
The situation in the Uzbek energy sector
appears paradoxical. Last December, the population
of Uzbekistan suffered a severe shortage of gas
and electricity, and the government decreed to cut
off hundreds of enterprises in Tashkent from gas
sources. At the same time, Uzbekistan is steadily
increasing its export volumes of gas.
In
2010, the volume of gas exported from Uzbekistan
to Russia exceeded that of Turkmenistan to Russia
and equaled 15.5 billion cubic meters (bcm),
compared with 10.5 bcm in the preceding year. This
year, according to Russian sources, Gazprom will
buy from Uzbekistan 14.5 bcm of gas for $220 per
one thousand cubic meters.
Additionally,
from April 1, Uzbekistan will start gas exports to
China through the gas pipeline from Turkmenistan
to China, the 529-kilometer Uzbek section of which
is planned to be completed by 2014. According to
the contract signed by the Uzbek Uztransgaz
Company and PetroChina International Ltd, the
sides agreed on an annual delivery of 10 bcm to
China priced at $90 per 1,000 cubic meters, which
is cheaper than the gas delivered to Russia by a
factor of 2.5 times.
Faced with the scarce
investment into its economy and the necessity of
modernizing its industry, Uzbekistan is pressed to
develop hydrocarbon deposits in the Aral Sea and
simultaneously expand its gas export volume, often
ignoring the shortage of energy sources in
domestic markets.
Clearly, the need to
intensify industrial development in rivalry with
Kazakhstan in Central Asia will, in the
short-term, force the Uzbek government to
significantly reduce its export volumes of gas.
This calls into question the feasibility of the
projected export targets.
Uzbekistan's
quest for hydrocarbon sources develops against the
background of deepening disintegration and brewing
conflicts in the face of worsening energy security
in Central Asia.
Southern Kazakhstan is
largely dependent on Turkmen and Uzbek gas
supplied from Gazprom on a swap basis for $85 and
$105 per 1,000 cubic meters, respectively.
According to the agreement concluded last
December, Gazprom promised to deliver to southern
Kazakhstan up to 3.5 bcm of Uzbek gas. However,
most likely, Uzbekistan will reconsider the price
for its gas in the second half of the year.
Whether the Aral Sea exploration project
will yield Uzbekistan its long-sought after
foreign investment and turn the country into a
major oil-producing state in Central Asia remains
to be seen. But its implementation in a densely
populated region with longstanding disputes over
water resources and conflicting interests of
Russia and China is fraught with new tensions.
Farkhad Sharip is an independent
journalist who lives in Alma-Aty, Kazakhstan.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
