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uzbekistan halts gas exports

Uzbekistan Halts Gas Exports

Author:Devon Sealander

Feb 11, 2022

Image source: AKI Press

In January the government of Uzbekistan halted all natural gas exports to cover domestic demand and appears to have set aside a recent directive to raise fuel prices at the beginning of 2022. These actions took place as protests in Kazakhstan, sparked by an increase in the price of liquified petroleum gas (LPG), were ongoing. The timing of Tashkent’s decision suggests concern that similar events could occur in Uzbekistan. However, this is not the first time that the country’s gas exports were redirected in response to wintertime shortages and protests. Between December 2020 and January 2021 shortages resulted in a number of small groups blocking roads to demand the restoration of gas supplies to their homes. Protests occurred despite the Uzbekistan government’s steps reducing gas exports to China in an attempt to alleviate domestic shortfalls. Given this history of small-scale protests, the government’s recent actions suggest an abundance of caution in dealing with local energy prices.

However, further analysis suggests there is more at play than concerns about possible public reactions.

Uzbekistan’s President Shavkat Mirziyoyev in December, 2020 acknowledged the ongoing challenges to meeting domestic demand for natural gas. Uzbekistan has struggled over the past several years with winter energy shortages, caused, at least in part, by falling production and aging utilities systems. Between 2019 and 2020 production fell from 57.3 billion cubic meters (bcm) to 47.1 bcm while domestic demand held steady at around 43 bcm. Over the same time period exports declined slightly from 12.2 bcm to 11.7 bcm. President Mirziyoyev has promoted public-private partnerships and prioritized attracting foreign investment as a way to modernize infrastructure, including in the energy space. Notably, the Public-Private Partnership (PPP) Law, first passed in 2017 and amended in 2021, created a dedicated PPP agency to promote partnerships across key sectors. The construction of six new powerplants, announced in December 2020, is the result of such public-private partnerships with foreign investors. Unlike other Central Asian countries, Uzbekistan experienced positive annual economic growth in 2020, attributed, in part, to tax and business reforms. Nonetheless, domestic gas supply shortages have persisted.

Oil and gas remain leading industries in Uzbekistan, but were hard-hit after the COVID-19 pandemic, supporting a January 2020 decision to reduce dependence on natural gas exports. Chinese imports of Uzbek gas declined by two-thirds in 2020 while Russian imports were completely halted. Combined, these two countries were the destination for 80 percent of Uzbekistan’s gas exports. The government has voiced concerns that exporting gas has not resulted in worthwhile profits. Industries associated with the country’s hydrocarbon resources, mining, and quarrying contributed around 5.7 percent to the country’s 2020 GDP, a significant drop from about 16 percent in 2019.

While interested in increasing its oil and gas production, the need to increase jobs and to diversify the country’s economy have led Tashkent to pivot towards investments that would allow for processing natural gas into higher value-added products, such as plastics and petrochemicals. This move, which includes halting all natural gas exports by 2025, is estimated to produce $4.1 billion worth of goods and $1.45 billion of exports while replacing $1.1 billion of imports. A key component of this plan was realized when the country’s first gas-to-liquids plant opened December 2021 in the Qashqadaryo Province. Expected to reach full capacity by the end of the year, the plant will produce synthetic liquid fuels valued at $1.5 billion from extracted gas worth $500 million.  

It remains to be seen if exports will resume later in the year. Looking at energy markets generally, current expectations are for higher average prices and increased world-wide demand for oil and natural gas. In the near term, redirecting gas exports to fulfill domestic needs addresses a chronic problem in the country and heads off possible public unhappiness.

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