New destination for Iranian oil discussed

New destination for Iranian oil discussed

Baku, Azerbaijan, Oct. 21

By Azer Ahmadbayli – Trend:

BP’s 2017 Statistical Review says Uzbekistan produced only 2.6 million tons of oil in 2016, which is a miserable amount for a country with a population of 30 million. Oil production is continuously going down for almost two decades.

The lion’s share of primary energy consumption falls on natural gas (87.6 percent), great values of which the country owns, while oil/oil products make only 5.3 percent.

Uzbekistan has three oil refineries with a total capacity of about 11.5 million tons per year. Refinery throughput is about 3.4 million tons per year, i.e. less than one-third of total capacity. The main oil products are gasoline and diesel fuel, which are mostly consumed in transport and agriculture sectors.

As is clear from abovesaid, Uzbekistan is facing a shortage in crude oil and particularly in end oil products. So far, Uzbekistan has been trying to turn the corner i.e. to cut oil products’ consumption (especially gasoline) by converting its vehicle fleet to work on compressed natural gas.

Meanwhile, having oil-rich neighbors such as Kazakhstan, Russia and partly Turkmenistan, the country is still searching additional volumes of oil to meet domestic demands.

The bulk of crude is exported from Russia, but it is some kind of overstatement to believe that Russia supplies some great amount of crude to the country. The same is with Kazakhstan.

JSC Uzbekneftegaz plans to import up to one million tons of oil from Russia and Kazakhstan in 2018, the chairman of the company’s board Alisher Sultanov has said recently. “We plan test pumping of 30,000 tons [of oil] in September and up to 200,000 tons until the end of this year. Next year we are going to receive up to one million tons.”

Sultanov has said that Uzbekneftegaz will import this volume during 2018-2020, and from 2021, after launching a new oil refinery in the Jizzakh region, the volume of import will increase to five million tons.

Earlier, Kazakh President Nursultan Nazarbayev said Kazakhstan will be able to deliver up to one million tons of end oil products to Uzbekistan.

However, so far there is no sign that the country’s old and friendly post-Soviet neighbors wish to accelerate the process. It seems that technical matters of oil transportation are in second place after financial ones. Neighboring countries will hardly agree to sell oil at their internal prices.

Thus, to reduce expenses and diversify its oil import, Tashkent should look for new suppliers.

This week, Uzbek Foreign Minister Abdulaziz Kamilov has met with Iran’s Oil Minister Bijan Namdar Zanganeh in Tehran to study the details of purchasing oil from Iran in the near future.

Noting that Uzbekistan is a land-locked state, Zanganeh said delivery of oil would be carried out by rail, yet the feasibility of other ways should also be assessed. Turkmenistan appears to be the shortest land route.

Another option would be swap operations with participation of a third party.

In September, Iran's crude output climbed to the pre-sanctions level of around 3.848 million barrels per day and is expected to rise to 4.7 million bpd in coming years. Iran’s heavy crude price averaged $52.27 in September.

According to Uzbekneftegaz, one ton of oil delivered (from Russia) to Uzbekistan by rail costs from $150 to $250. Recently, Iran Railways has decided to offer freight transportation discounts of up to 50 percent on exports of goods from Iran.

In this particular case interests of both sides coincide. Iran could get another customer of its growing volumes of oil, while Uzbekistan will be able to tackle domestic deficiency of end oil products.

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