Role of Gazprom Remains Pivotal

Although Tashkent is trying to drive a hard bargain with Russian gas company Gazprom, it has little alternative to working with the firm to develop and export its oil and gas, NBCentralAsia energy experts say.



In late May, a high-level Gazprom team led by company president Aleksei Miller visited Uzbekistan for talks on exploration work on the Ustyurt plateau in the northwest of the country.



The Uzbek state press remained tight-lipped on the outcome of the talks.



Ustyurt is Uzbekistan’s largest oil-and-gas-bearing region, with 16 fields discovered to date. The most well-known is Shahpakhty, which is currently being developed in partnership with Russian investors, and has a potential production capacity of five billion cubic metres of gas a year.



In 2006, Gazprom and the Uzbek government signed an agreement to conduct joint exploration of possible new fields.



The deal provides for a production sharing agreement or PSA with the Russians, and collaboration to develop Uzbek and Central Asian gas pipeline networks. Under the terms of the PSA, Gazprom is also given priority rights to develop new gas condensate fields.



In 2007, however, implementation of the project slowed down.



“The first phase of cooperation revealed differences of opinion and new demands, mostly on the part of the Uzbeks, who were unhappy at the slow pace of investment,” noted an NBCentralAsia observer in Tashkent.



Gazprom said the low scale of investment – less than what the agreement had specified – was a consequence of delays by the Uzbeks in issuing licenses for geological exploration.



“The Uzbek authorities try not to allow any [foreign partner in mineral extraction projects] to become dominant by threatening them with sudden changes to terms and conditions, even the annulment of agreements, as happened in 2005 to the American gold mining firm Newmont and Britain’s Oxus Gold,” said the Tashkent-based observer.



However, the situation has changed again. Tashkent is now stressing the need to attract investment into exploring new fields. It wants to increase its gas exports and use the revenue to boost its ailing economy.



According to official figures, Uzbekistan needs about three billion US dollars in investment to increase oil and gas production by 2010.



For its part, Gazprom finds itself in a global environment of rising international prices and greater competition for access to energy resources. This gives it an added incentive to strengthen its foothold in Uzbekistan, commentators say.



Gazprom has not only secured long-term agreements for gas production, but has also contracted to buy Uzbek gas, currently 13 billion cu m a year. It remains committed to buying large volumes of gas despite the Uzbek government’s policy of raising prices.



The gas is exported via the Central Asia-Centre and Bukhara-Ural pipelines. According to Yaroslav Razumov, an energy expert from Kazakstan, “These old, well-tried routes are optimal in terms of risk, political advantage and revenue. So both sides – Tashkent and Moscow – have more or less calculated how much room for manoeuvre there is on price, and are already prepared to compromise on both development and transit issues.”



Some experts argue that Moscow could gain the upper hand when it comes to future investment in exploration and development, and may be able to dictate certain conditions, for instance by deciding pricing policy on its own.



Gulnur Rakhmatullina, head of the economic research department at the Institute of Strategic Studies, which is affiliated with the Kazak president’s office, says Russia has a big interest in joint exploration projects are many of its expanding widening of joint geologic exploration as many of its own fields are running out or becoming unprofitable.



“Russia invests money and it wants its interests to be taken into account,” she said.



(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service is resuming, covering only Uzbekistan and Turkmenistan for the moment.)