Uzbekistan creating gas processing industry to feed soaring domestic demand

Uzbekistan creating gas processing industry to feed soaring domestic demand
The first synthetic diesel was produced at the newly built Uzbekistan GTL gas-to-liquids plant on July 1. / Clare Nuttall
By Clare Nuttall in Qarshi and Tashkent July 10, 2022

Rather than exporting natural gas as a raw material, Uzbekistan is investing into deep processing capacity to enable domestic production of fuels, plastics and other products. 

The first synthetic diesel was produced at the newly built Uzbekistan GTL (UzGTL) gas-to-liquids (GTL) plant on July 1, in an important step in Uzbekistan’s quest to move away from natural gas exports to production of higher-value products domestically.

Uzbekistan, like its neighbours Kazakhstan and Turkmenistan, is a major producer of natural gas. It is planning to increase production, but rather than exporting the gas as a raw material, investments into processing capacity have been launched to help meet the demand of the country’s growing population and industrial sector for fuel, plastics and other products. 

The GTL plant in Uzbekistan’s Kashkardarya region was officially opened on December 25, 2021. It is located south of the city of Qarshi, not far from Uzbekistan’s border with Turkmenistan, and right next to the Shurtan Gas Chemical Complex. The plant is equipped with modern gas and petrochemical technologies from companies including South Africa’s Sasol, Denmark’s Haldor Topsoe and US Chevron. It was built by a consortium including Korean companies Hyundai Engineering and Hyundai Engineering & Construction, and Uzbekistan’s Enter Engineering.

After it was put into operation, in the first half of this year the plant has been gradually building up stocks of semi-finished products. It launched production of hydrogen back in February, to be used in the manufacture of synthetic oil and fuel. On June 19, UzGTL said the plant produced its first synthetic oil, which was stored for further refinement and processing into the end products of diesel fuel, aviation fuel, kerosene, naphtha and LPG. 

Shokhrukh Kholmatov, head of the consolidated information and analytical department at Uzbekistan GTL, who took journalists on a tour of the plant on June 25, explained: “We are now in the commissioning phase where we have begun the production of synthetic oil. We are accumulating synthetic oil in the tanks, and when it reaches the sufficient level we will begin the production of the finished products kerosene, diesel, naphtha and LPG.” 

Then on July 1, production of the first synthetic diesel products started, with the initial batch shipped from the plant three days later. On July 5, synthetic diesel was sold for the first time on the Uzbek Republican Commodity and Raw Materials Exchange.

As previously reported, when the plant is fully operational, it will have the capacity to produce 1.5mn tonnes per year of finished liquid fuel products, including 307,000 tpy of jet fuel, 724,000 tpy of diesel fuel, 437,000 tpy of naphtha and 53,000 tpy of liquefied gas.

There are also expected to be environmental benefits; during a visit to the plant researchers demonstrated the cleaner burn from its synthetic oil compared to traditional oil. 

The energy ministry has said that GTL fuels will produce 40% less atmospheric emissions compared to usual emissions from comparative fuels. Annual emissions would thus be reduced by 13,500 tonnes.

Export taps switched off 

Until recently Uzbekistan, one of the top three gas producers in the former Soviet Union, exported gas to Russia, China and some of its Central Asian neighbours. However, earlier this year Uzbekistan suspended exporting the fuel this year amid a surge in local consumption, and aims to end gas exports altogether by 2025. 

Domestic gas consumption is expected to amount to 47.2bn cubic metres this year, according to government estimates.  Moreover, given Uzbekistan’s fast-growing population, demand for car fuels, plastics and other products is rapidly increasing. This prompted efforts to develop deep gas processing within the country as an alternative to exporting gas as a raw material then re-importing finished products. 

This has been most obvious over the last couple of decades in the struggles by Uzbek drivers to find petrol or diesel for their cars. In recent years cars have been switched en masse to run off compressed natural gas (CNG) instead, with filling stations advertising ‘metan’ (compressed gas), which is now used by almost two-thirds of cars. While motorists initially converted their own cars, local automakers now produce cars designed to run on the fuel.

Now UzGTL will be converting natural gas into liquid fuels and products, with import substitution potential estimated at over $1bn annually.

“Our main goals are to: expand Uzbekistan’s capacity for the deep processing of domestic natural gas; significantly decrease imports of hydrocarbons; satisfy local demand for high-quality and environmentally friendly fuel; and provide the market with strategic value-added products made from our own raw materials,” said Energy Minister Alisher Sultanov at the launch of the plant in December. 

At the Tashkent Energy Forum in June, First Deputy Energy Minister Azim Akhmedkhadjaev also talked of the need to develop deep processing production of high value added products from hydrocarbons.

Alisher Bakhadirov head of the downstream department at state oil and gas company Uzbekneftegaz, said Uzbekistan saw the potential of investing into petrochemicals projects such as GTL or methanol-to-olefins (MTO). He told journalists on June 24 that Uzbekistan doesn’t need the Central Asia-China pipeline, and while gas was previously transported via other pipelines or as LNG, the priority now is to feed domestic petrochemicals production. 

Uzbekistan plans to increase natural gas production by more than 20% by the end of the decade, Bloomberg reported, citing Ahmedhojaev in March. Gas production is to rise to 66.1 bcm in 2030 from 53.6 bcm last year.

At the same time, Uzbekistan plans to move partially away from using gas to produce electricity, as it embarks on its green transition. Numerous renewables projects wind, solar and hydro have been initiated since 2019, as Tashkent faces the challenge of supplying energy to its growing population while at the same time reducing greenhouse gas (GHG) emissions in line with its Paris Agreement and COP26 commitments. Gas, meanwhile, will still be sent to supply modern CCGT plants that will make up the shortfall when weather conditions mean it can’t produce enough from renewables facilities. That should also ease the energy shortages that sometimes plague the country in winter despite its gas resources. 

Targeting the local market

In line with this strategy UzGTL is initially targeting the local market with its production. “The first need is to sell to the local market and after that if we have capacity to sell for export we will,” Kholmatov told bne IntelliNews.

Odiljon Karimov, first deputy general director of UzGTL, said new products are likely to be added in future, but the current focus is on finishing all the commissioning works and on starting production of the initial range of GTL products. 

Commenting on expected demand, Karimov noted at a briefing for journalists that the launch of domestic production, making products cheaper and more readily available, may cause demand to increase, reducing the availability of products for export. 

“When we carried out a feasibility study we found we can cover almost 80% of the local demand [for diesel], however, when there is product availability the demand also increases, we see from previous products,” said Karimov. 

“Once we provide the fuels to the local market, when the people see the business opportunity they can open new business, more businesses means more demand. That’s why in future we can see that even our full amount will not be able to cover demand in future,” he added. 

Feeding the domestic plastics industry 

Another mega project is now in the works at an earlier stage, the MTO project being developed by Sanoat Energetika Guruhi (SEG). Construction of the plant is set to cost over $2.5bn, and is expected to be completed by end-2024. 

“The MTO project is one of the biggest now in the pipeline of investment projects in Uzbekistan dedicated to the new trend strategy to develop the county, monetisation of gas, creating the added value chain, and allocating all the value processes here in Uzbekistan,” Nigora Ibadova, head of the Gas Chemical Complex MTO, told journalists in Tashkent on June 24. 

“Instead of selling gas as raw material we are now focusing on establishing the premises which could treat the gas and produce the fuels which are in big demand in the country.” 

Ibadova references the country’s rapid population growth; already the most populous country in Central Asia its population is expanding each year by more than 600,000. “This means the consumption of many, many end products is increasing. One of those is products containing different polyolefins,” she said. 

Gas processing is being developed at the same time as the future textiles industry. Just like gas, Uzbekistan is seeing a trend of “decreasing sales of cotton as a raw material, instead making centralised clusters to produce all the value chain like ready-made clothes. To increase the variety of products which could be produced with the use of cotton we need synthetic fibre,” explained Ibadova. Uzbekistan already has the fifth-largest producer of synthetic carpets in the world, but this currently depends on imports of artificial fibres from Turkey. 

The developers of the MTO plant have been working closely with local producers that are currently importing polymers to ensure they produce what the industry needs. Just like the UzGTL plant, the MTO plant will focus on the domestic market. When it starts operation, 70% of its products will be sold on the local market, and the remaining 30%, mostly polypropylene, will be export production. 

As for the GTL plant, however, this may change as the deep processing of Uzbekistan’s gas to create industrial inputs is already expected to lead to the creation of new businesses and new industrial sectors within the country.