TASHKENT (TCA) -- Hydrocarbon exploration in Uzbekistan's part of the Aral Sea over the past four years did not bring any significant results. The project, which appeared to be promising at first, is disappointing investors.
Little water, little gas at Aral
In mid-August, Uzbek President Islam Karimov approved an additional investment program on exploration under the product sharing agreement (PSA) in the Uzbek part of the Aral Sea.
According to the document, Uzbekneftegaz national oil and gas company together with other members of the investors' consortium will carry out exploration and drilling of three wells with minimum funding totaling $17 million.
In August 2006, the Uzbek government and an international consortium of Uzbekneftegaz, Russian Lukoil Overseas, Malaysian Petronas, Korean KNOC and China's CNPC signed a PSA for the project for 35 years.
Under the agreement, each of the consortium participants initially owned 10% of the output, while the minimum share for Uzbekistan was to be 50%. PSA came into effect in January 2007. The Aral Sea Operating Company, registered in Uzbekistan's state agencies, was established to implement the project.
According to the operator, a consortium of investors has fully completed the exploration program, provided by the PSA, including over 2,900 kilometers of seismic prospecting on 2D method, and the drilling of two exploration wells worth $110.2 million.
As a result, a new Western Aral deposit had been discovered with the total estimated natural gas reserves of 11 billion cubic meters. Also, six promising areas, four of which are ready for deep drilling, have been revealed on the basis of seismic prospecting.
According to the consortium, the main priority for further implementation of the PSA will be more thorough search and evaluation activities aimed at discovering new deposits and estimation of hydrocarbon reserves in revealed fields.
In the early 2000s, when the Aral project had been actively advertised by the Uzbek side, gas reserves in the contract area were estimated at one trillion cubic meters, and oil reserves at about 150 million tons. The maximum gas production was expected at 25 billion cubic meters.
"Nevertheless, the exploration results were not encouraging," said Ilkhat Tushev, the analyst at Central Asia Investments. "We should so long admit that exploration wells, drilled in the contract areas, gave in fact zero business results."
The project, which seemed prodigious at first, is falling short for investors. In May 2011, Petronas withdrew from the consortium and conveyed its share to other members, formally justifying its withdrawal by intensification of work in other projects in Uzbekistan.
Perhaps there are significant reserves of oil and gas in the Aral Sea, but the exploratory wells were drilled in the wrong areas and there were not enough of them? Maybe analyst Dilmurad Kholmatov is right, assuming that "the resources of the Aral Sea have been initially greatly overestimated, and now Tashkent has to revise forecasts in the entire Ustyurt oil and gas region."
Gas not enough for all
The main growth in proven reserves and production of hydrocarbons, especially gas, in Uzbekistan is in the Ustyurt region (country's north-west), since experts believe that by 2020 the majority of deposits in other regions will pass their production peaks. Prospective gas resources here are estimated at nearly two trillion cubic meters, and liquid hydrocarbon resources at 900 million tons. Until 2025, an increase in natural gas reserves in Ustyurt is expected to make 1.076 trillion cubic meters, which is about 60% of the total expected increase in the country's natural gas reserves.
The first alarms were raised regarding Ustyurt's resources in 2007, when Gazprom decided to return to Uzbekneftegaz licenses for three out of seven investment blocks provided to the Russian company in 2006 for exploration and further development. With pre-crisis gas prices, many analysts considered this move of the Russian company as a confirmation of the lack of gas reserves in the proposed areas.
Uzbekneftegaz tried to ignore such a serious failure, especially as it found an immediate replacement. In May 2008, Tashkent signed a PSA with Malaysia's Petronas to develop major gas condensate fields - Urga, Kuanysh, and fields of the Akchalak group, the areas rejected by Gazprom.
However, after the failure on the Aral Sea, foreign investors may become less pliable, and major concessions will be necessary to attract them, believes Kholmatov. Representatives of investors say that they have to work in difficult conditions: lack of competent personnel, necessary scientific base and infrastructure, as well as a severe climate that makes drilling works almost impossible from November to April. In addition, they now have high geological risks.
According to updated forecasts made in May 2011, Uzbekistan is expected to produce 80 billion cubic meters of gas per year by 2020 due to the commissioning of new fields, and up to 27 billion cubic meters of gas will be exported.
However, these are just the expected production volumes, based on the government's statements. In recent years, gas production in Uzbekistan has had a negative trend (gas production in the country in 2010 decreased by 11% to 60.1 billion cubic meters compared with 2008). A series of failures in exploration drilling on the Aral Sea show that the country can expect some other reductions in the gas production.
By Dilshod Ashurmatov
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