06.11.03 07:46

The republics of Central Asia are increasing the output of oil products at a high pace, having set a strategic task to secure an important place for themselves in the Russian and European markets, while Russian companies are busy with raising oil exports. These are long-term plans that Russia's southern neighbors have already started bringing about. And as long as Russian oilmen relish a rise in exports of raw materials, their colleagues from the Central Asian states stake at improving quality of the export-oriented products.

Central Asia lacks deep refining

A rise in the world oil prices has left unnoticed the trends in the development of the former USSR's oil products market where important changes have occurred. The oil producing states of Central Asia have been implementing comprehensive modernization of their oil refining industries in an attempt to improve their positions in the market.

In Uzbekistan there is a technological modernization of the Fergana oil refinery going on since October that will ensure an increase in oil products output by one third and will improve quality of oil products. By doing this, Tashkent hopes to increase the exports of oil products by no less than one mln tons in 2004, and, first and foremost, by exporting "light" oil products. The reconstruction and modernization of oil refineries in Turkmenistan and Kazakhstan is going on at a great lick and is due in Azerbaijan.

With the slight differences in data for each of renovated enterprises the deep refining will rise, on the whole, from 50% to 85% due to modernization. This figure is a bit smaller than that of the majority of oil refineries in Northern, Central and Western Europe, but bigger that that of any Russian refinery. In the end one can resume that the Asian states entered into competition with Russia for the most promising sectors of the oil products market - selling high-octane non-ethylene gasoline, kerosene, low-sulphur diesel fuel and lubricants that are in demand. So far, these states export oil products in small amounts, but all of them, except Kazakhstan, plan to increase exports of oil products in the near future.

A representative of the state trading corporation Turkmenneftgas that controls oil refining and exports of hydrocarbons said: "Our priority task today is to secure a place for ourselves in foreign markets as the seller of highly valuable products of oil and gas refining. Then we will be able to succeed in solving a strategic task - to export tens of millions tons of products, ranging from gasoline to polypropylene".

The Turkmen way

Turkmenistan has advanced further than any of the Caspian states in developing its export strategy. A rise in exports of oil products in nine months of this year was about 20% on the oil output against last year's 10%.

Traders from Europe, North America, East Asia, the Middle East, including BP, Glencore International and Vitol (Switzerland), Argomar oil (Austria) and Itochu (Japan) purchase those products.

And the amount of the production and export of "dark" oil products such as masut decrease at an average annual rate of 30% a year but the production of diesel fuel and gasoline, on the contrary, increase at the same pace. A growth in the production of A-95 type of gasoline amounts to 60% a year and lubricants - over 800%. High octane Turkmen gasoline has been supplied to the Russian market since last year.

The products of oil refining are of better quality thanks to the Turkmenbashi (former Krasnovodsk) oil refinery reconstruction worth over $1 bln. After the completion of the first stage of reconstruction works last year, the refinery provides deep refining at the level of 85% against previous 64%. Several months ago the German Tecknip started the construction of a hydro-refining outfit of diesel fuel that will make it possible to lower its sulphur percentage in 150 times from 0,15 to 0,001%.

The Tecknip's project signifies the beginning of the second stage of the refinery reconstruction to ensure increasing its capacity from 6 mln to 10 mln tons of oil per year. The other goal of the project is to produce "light" oil products that will fully meet the European standards. An interviewee of our newspaper from Turkmenneftegas said: "Certainly, we cannot compete with Russia as regards the amount of liquid hydrocarbons exports. But we develop our export facilities on the basis of the market's needs and do not build our market strategy relying on the existing facilities". "The Turkmen way" makes it clear for us what direction the other eastern member-states of the commonwealth move in the sphere of oil refining.

Counting on Russia

A long-term export strategy of Turkmenistan is based on the intensification of oil refining. The amount of oil products is set to rise by over 500% to 32 mln tons in 2020 compared with 2003. Two renovated plants and two new refineries will refine this oil. Their exports will rise accordingly.

Neighboring Kazakhstan has set two tasks: stopping imports of oil products from Russia and increasing its own exports. In the second half of the 90th the Shimkent oil refinery was reconstructed there that refines oil from the Kumkol group of oil fields in the south of the country. This plant is a main source of today's exports of Kazakh oil products. The Atyrau oil refinery, which has been undergoing a major overhaul without any disruption of the production process since 2002, must become a base of new oil export supplies to the world markets. It is situated in the west of Kazakhstan near the state's major oil deposits.

As a result of the reconstruction the deep refining will increase from 50 to 82%, production of high-octane gasoline will increase by 640%, sulphur percentage in gasoline and diesel fuel will decrease from 0,2 to 0,05%. Good-quality products output will help increase the amount of oil refining from 2 mln to 4,6 mln tons a year. The reconstruction of the Atyrau oil refinery worth about $600 mln is implemented by Japanese investors. The works are to be finished in 2006. After that Astana plans to start exporting its oil products to Russia and Europe. In the same period Kazakhstan plans to increase the amount of oil refining in the country as a whole, because it will get good-quality products as a result of oil refining.

As for Azerbaijan and Uzbekistan, as opposed to Kazakhstan and Turkmenistan, they plan to renovate oil refineries with the help of internal financial sources. Azerbaijan is steadily developing one of two oil refineries, "Azerneftyag", that is more updated than the second one, with the capacity of 14 mln tons a year. Azerbaijan has made the plans of further modernization of the refinery dependent on the oil production growth rate. As for Uzbekistan, its main task at present is to expand its technological capacity to refine as many types of oil as possible: Western-Siberian, Kumkol and heavy Kazakh oil. It has already enhanced the deep refining in the 90th.

Nevertheless, a representative of one large Japan corporation participating in the Atyrau oil refinery reconstruction said: "We consider the market of reconstruction of oil refineries in the Caspian region very promising. For instance, we are interested in Azerbaijan. The Caspian states have lots of oil; their refineries are generally situated close to the outlets of mineral reserves and not far away from the consumers in Europe, the CIS and Iran. All these factors make Caspian hydrocarbons competitive and motivate national governments to develop further oil refining along with oil extraction projects.

Refining by order

The Central Asian states have interconnected projects on developing new oil reserves with increasing oil products output. The main source of raw materials supply to the Turkmenbashi oil refineries will be the reserves of the Turkmen Caspian shelf. Such companies as Dragon Oil from the UAE, Malaysian Petronas, Maersk oil from Denmark already operate there, and Itera, Zarubejneft and Gasprom from Russia are coming.

Kazakhstan has a similar with Turkmenistan approach on using Caspian shelf's oil. One of the conditions it puts forward in the tenders on the Caspian shelf's blocks exploration is a compulsory 20% delivery of extracted oil to the Kazakh oil refineries. Oil from the seabed first goes to the Atyrau oil refinery, then to the Shymkent and Pavlodar oil refineries considering that the latter receives oil from Russia to refine.

A source in the Atyrau's office of the Kazakh national oil and gas company Kazmunaigas stated: "The state program of the Caspian shelf development approved by the President of state proclaims the development of the refining and oil-chemistry industries one of its priority goals. Enhancing the export structure by producing oil products is the long-term task of our state. After 2015 we will produce around 200 mln tons a year and its major part will be refined domestically and exported".

Uzbek President Islam Karimov obliged by one of his Decrees oil projects participants to refine all or biggest part of extracted liquid hydrocarbons inside the country and export the products of its refining. All those actions of the Central Asian leaders make it clear as to what extent the development of oil refining industry is important for their export plans.

Yet, there is still a hope in the Central Asian states that there will remain enough oil to both meet their internal needs and export it to the nearby countries in the form of crude oil and to Russia in the form of oil products. Kazakhstan's oil experts believe that Russia will become the largest sales market of oil products already in the next decade.

"RusEnergy" agency specially for the "Kommersant" newspaper.

Export of oil products from the states of Central Asia and Azerbaijan
(mln tons per year)

State 2002 2005(projected)

Azerbaijan 2,5 3,5
Kazakhstan 1,1 1,1
Turkmenistan 3 8
Uzbekistan 1 2,1

Source: "RusEnergy"
The "Kommersant" newspaper, 05.11.2003