Some Dead Horses Need Repeated Beating

by Nathan Hamm on 6/20/2005 · 18 comments

On a past post about my favorite throw-away line about Uzbekistan–that it’s an oil powerhouse–Phil Bailey left the following comment:

I suppose the fact that Uzbekistan has the fourth largest gold reserves in the world, massive undeveloped gas fields (Tim clearly reads the wrong journals) and sufficient oil to interest foreign companies is also irrelevant?

Enron didn’t think so in ‘94 when they were trying to arrange a deal over the Kandym gas field, nor do the UK’s Oxus Gold, busy digging up the stuff right now (no doubt so Karimov can steal it and ship it to the Bank of England, as he has done in the past).

Which is fine I guess because the point I’m trying to make isn’t that Karimov is wrong about his country being extra super special in the resources department but that it’s not oil that makes it appealing. If one wants to make the same tired case that “it’s all about oil,” you’re going to have to strike oil and put in something else in this case. What’s there apparently is not enough to excite western companies.

And Phil kind of misses the other point–that resource access isn’t driving Uzbekistan’s relationship with the west. Uzbekistan’s gas reserves are much more impressive than it’s oil reserves. Even if we are talking about gas, I’m not terribly convinced that Uzbekistan’s sufficiently appealing for western countries to put all that much effort into getting their governments to broker deals with the Uzbek government. No one really offers anything up here except that Enron deal from way back. I’m going to believe Tim and my own lying eyes on this one (especially over a leftist hack with a proven inability to read well and who calls this site an apologia for fascism). Uzbekistan just isn’t that enticing to anyone but Russian and Uzbek companies.

What makes the gold partnerships work? Beats me. Newmont’s Zarafshan operation has been around a while too in addition to Oxus. If Phil wants to suggest that the relationship is all about gold, he’s welcome to. But, like with the oil argument, it only works if you ignore a lot.


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– author of 2991 posts on 17_PersonNotFound.

Nathan is the founder and Principal Analyst for Registan, which he launched in 2003. He was a Peace Corps Volunteer in Uzbekistan 2000-2001 and received his MA in Central Asian Studies from the University of Washington in 2007. Since 2007, he has worked full-time as an analyst, consulting with private and government clients on Central Asian affairs, specializing in how socio-cultural and political factors shape risks and opportunities and how organizations can adjust their strategic and operational plans to account for these variables. More information on Registan's services can be found here, and Nathan can be contacted via Twitter or email.

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{ 18 comments }

jonathan p June 21, 2005 at 1:02 am

I think what made the gold partnerships necessary initially was a lack of cash in the early 90s. The facilities were there, but they suddenly needed updating in order to complete in the open market. The Uzbek government did not have the money or the know-how to get that job done.

(Correct me if I’m wrong, but my understanding is that the gas operations were not well established by the early 90s.)

IMHO, the thing that keeps the gold deals going is an increasingly troublesome lack of educated, trained, qualified local experts able to work in the upper levels of management and engineering. Like it or not, the “brains” behind the mining operations in Uz were not (and are not) native Uzbeks. And for whatever reason, the Uzbek government still does not seem interested in promoting Engineering/Science/etc among its own people. The result is a glut of “finance” graduates and a lack of engineering graduates.

Adam June 21, 2005 at 4:29 am

Resources aside, I found this account of a conversation with one of Rumsfeld’s advisers especially telling:

“What we need in this region is an aircraft carrier in a smooth, calm sea and Uzbekistan is that aircraft carrier.” He laughed and told me to “grow up” when I asked him about the human rights abuses of the Uzbek regime. “Mr Rumsfeld is right,” he sarcastically told me, “Uzbekistan is stable – stable and quiet as a graveyard.”
http://www.craigmurray.co.uk/archives/2005/05/what_we_need_in.html

Binh June 21, 2005 at 4:51 am

It looks as if the Canadians are muscling in on the Uzbek gas goodies:

http://biz.yahoo.com/ccn/050620/9ecbd624497a6cab02b71da2eb254220.html?.v=1

I guess “protocol agreement” means that they see some potential there?

Binh June 21, 2005 at 5:14 am

from: http://www.globalsecurity.org/military/world/centralasia/uzbek-energy.htm

Uzbekistan is the world’s eighth largest natural gas producer, and is also a major oil producer. However, oil and gas exports are limited by the available pipeline capacity…

Uzbekistan currently possesses about 600 million barrels of proven oil reserves, but this is soon expected to increase. There are 171 oil and gas fields, over 60% of which are in the Bukhara-Kiva region, which accounts for about 70% of Uzbekistan’s oil production. The second largest is the Fergana region, which contains about 20% of Uzbekistan’s oil fields…

The Uzbek government is offering production sharing agreements (PSAs) in over 80 of the oil fields (estimated to contain about 1.2 billion barrels of oil), which is expected to attract $400 million in investment…

Uzbekistan is also trying to get foreign investors to increase production in existing oil fields. A joint venture has been formed with Baker Hughes to increase production of the North Urtabulak field. Baker Hughes is investing $8 million in this project and it is expected to increase production of the North Urtabulak field to over 6,000 barrels per day (b/d). Uzbekistan has also given Baker Hughes the option to develop the Adamtash, South Kemachi, and Umid fields, with total investment expected to be as much as $120 million.

In 2001, Uzbekistan awarded licenses to UzPEC, a subsidiary of Trinity Energy of the U.K., to explore and develop fields in Southwest Gissar and Central Ustyurt which are expected to produce oil and gas condensate. Under the PSA, UzPEC is expected to invest over $400 million over a 40-year period with $200 million of it coming in the first five years.

Because of all the growing interest in Uzbekistan as a source of petroleum, Uzbekistan has been able to dramatically increased its production of crude oil since 1990; in the early 1990s, Uzbekistan was a net importer of oil, but now it is a net exporter…

Uzbekneftegaz is the state-owned holding company that was created in 1998 when the government merged nine companies in the oil and gas sector. Since independence, the Uzbek government has invested more than $1.2 billion in Uzbekneftegaz, but foreign investors have been reluctant to invest because of the strict currency controls. Currently, Uzbekistan is trying to privatize 49% of Uzbekneftegaz.

Besides the partial privatization of Uzbekneftegaz, Uzbekistan is also trying to sell minority shares in its subsidiaries, including 44% of Uzneftegazdobycha, the oil and gas exploration subsidiary. There is also an offer to sell 39% of Uzneftepererabotka (oil refining) and 39% of Uzburneftegaz (drilling company). In April 2000, the President of Uzbekistan announced these privatization initiatives and also announced that foreign companies who invest in exploration and extraction would receive tax exemptions and options to produce any oil or gas they discover for a fixed period of time…

In 2001, Mitsui of Japan completed a $200 million upgrade at the Fergana refinery, expanding the desulfurization system. Texaco and Uzbekistan’s Uzneftepererabotka formed the UZ-Texaco joint venture in 1996 to produce and market Texaco brand lubricants for engines, transmissions and hydraulic systems. Under Texaco’s arrangement with the Uzbek government, they are allowed to convert earning in soms into dollars, which is usually not permitted by Uzbekistan in its contracts with outsiders…

In January 2001, Trinity Energy of Britain reached agreement with the Uzbek government to invest $400 million in gas exploration and production over a 40-year period. This effort is directed at producing from gas deposits in the Plato Ustyurt region…

Andy June 21, 2005 at 7:43 am

Binh,

The article you posted says that Uzbekistan has 600 million barrels of proven reserves, maybe 1.2 billion if the estimates you mention are correct.

To put this into perspective slightly, this is less than 1% of the level of reserves in Iraq. At this kind of level, I’d suggest that Uzbekistan is actually quite close to being a net importer of oil, rather than a net exporter. (I know for certain that Ukraine, which has around the same amount of oil but is, admittedly, more industrialised, is a net importer).

To put the figures into perspective further, the world gobbles up more than 80 million barrels of oil per day. Assuming that Uzbekistan was the world’s only oil source (which thankfully it is not), the world would consume every drop of Uzbek oil in less than 10 days (15 if your higher estimate of 1.2 billion is correct).

jonathan p June 21, 2005 at 9:54 am

I have a friend who works for Baker Hughes in Uzbekistan. We’re not talking about vast oil fields here, folks. He has told me that he thinks there “may be enough” oil for Uz to be self-sufficient in this regard.

Nathan June 21, 2005 at 9:58 am

Thank you Andy. My point exactly. Even at the low end estimates (PDF) from the USGS back in 1998, ANWR has loads more oil.

It’s not that I’m saying these resources aren’t valuable or that western companies don’t want a piece of the action. It’s that there’s a lot more reason to pursue expansion elsewhere, where there’s more to be gained and it’s easier to do business. Western companies seem to have figured that out, and we’re not hearing all that much about deals involving them anymore.

Jonathan, thanks for the info on gold. That’s what I thought the deal probably was. As Newmont put it to a buddy in Zarafshan, what they do is extract gold from leftover ore that the Uzbeks are incapable of extracting gold from. Like you said, the people to do it weren’t around anymore. Navoi’s many factories were having the same brain-drain problems. And you’re right, everyone’s becoming an economist. I did do a little tiny bit of work at the Mining Institute, but it seemed like a lot of those students would rather have been in Tashkent studying international finance.

Phil Bailey June 21, 2005 at 1:47 pm

Fascinating bunch of replies. Really interesting. Nathan is quite correct that Uzbekistan’s relatively modest oil reserves aren’t the sole determinant of the West’s relationship with Karimov. Personally I think there are two broad factors – Uzbekistan’s natural resources, including oil, and the potential profits they represent and, secondly, its use as an “aircraft carrier” with which to project U.S. power in the region.

But Nathan’s claim that “resource access isn’t driving Uzbekistan’s relationship with the west” and that “Uzbekistan just isn’t that enticing to anyone but Russian and Uzbek companies” reminds me of a scene from Monty Python’s Life of Brian –
“What have the Romans ever done for us?”, asks one malcontent.
His friends point out some of the benefits of Roman rule, but he persists –

“Alright, apart from roads, sanitation, aquaducts and peace, what have the Romans ever done for us?”

Thus,

Nathan – “Alright, apart from Oxus Gold, Newmont, Baker Hughes, Trinity Energy, Mitsui, Texaco, Arsenal Energy (and any others which may have been overlooked here), what evidence is there that resource access is driving Uzbekistan’s relationship with the West?”

The point being that you can’t argue with this kind of illogic.

David June 21, 2005 at 2:24 pm

Looks like global policy were ripping off the US Department of Energy:

The line “Uzbekistan is the world’s eighth largest natural gas producer, and is also a major oil producer” seems to originate here:

http://www.fe.doe.gov/international/Russia_and_Central_Asia/uzbkover.html

Maybe Nathan needs to give the DOE a call to tell them to stop flogging that dead horse…

Tim Newman June 21, 2005 at 2:46 pm

Heh! Tim reads the wrong journals, does he? I guess I do. That would explain why I mistakenly believe that not one of the supermajors, (Exxon, Texaco, Shell, BP, or Total) has invested more than pocket change in Uzbekistan, even though they are desperate for reserves on their books. No doubt, were I to read the right journals, I’d also learn that Qatar, Russia, and Iran are not the only countries in the region with gas fields worth bothering with and Uzbekistan is the site of a dozen planned GTL and LNG plants. In fact, having read the right journals, nobody would question the wisdom of forays into Uzbek gas fields when one considers that there are 25 countries with more gas, all but two of them with outlets to the sea. Given that in my ignorance I have the impression that the world gas market is going to be increasingly reliant on transortation by ship, especially to the US, I am rather puzzled as to why double-landlocked Uzbekistan is the country of choice for so many.

But then again, what would I know?

Nathan June 21, 2005 at 2:54 pm

Like a fly to shit Phil…

What’s Texaco do in Uzbekistan? Well…

The goal of establishing this enterprise was to provide the Central Asian region with high-quality lubricants.

Uz-Texaco imports products from Europe and manufactures high-quality motor oils for the developing car industry of Uzbekistan. Uz-Texaco is the safe source of lubricant supply for the agricultural, construction and mining industry of Uzbekistan.

Lubes, dude. Lubes. Not barrels of oil for Karl Rove to bathe in.

Reading up on Mitsui, it sounds to me like it’s just like the gold. Uzbekistan needs the know-how, and it’s getting it elsewhere. They don’t look at all like they’re pumping and selling oil to me.

I could go on and on through the list, but you seem to be entirely missing the point. It’s not that we’re saying there’s no interest at all in Uzbekistan’s resources, but that it’s rather unconvincing to say that resources are driving the relationship.

Deals cut years ago are brought up over and over again. Why no new deals? Why did Lukoil get the big one? Surely if it was so important we’d have pressed harder, right? I mean, if it’s such an important matter of US and European foreign policy to get that oil, gas, and gold, we’d be bending over backwards to make sure the Russians get it, right?

It strikes me as nothing more than poser-ish faux-intellectualism when people say this, that, and the other thing in the US or European relationships with Uzbekistan has to do with getting at the oil. To horribly mischaracterize the argument, it’s almost as if those who make it think that Uzbekistan would be a wonderland of puppy dogs, rainbows, and sunshine were it not for our propping up the government to get at the sweet, sweet oil, gas, and gold.

Unfortunately, it is more accurate to say there are some Western companies involved in joint-partnerships doing things the Uzbeks can’t do. Russia gets the big contract.

Meanwhile, I also wonder why it is we’re not expending similar energy to oppress the poor people of Kazakhstan and Turkmenistan to get at their precious resources.

I don’t know… Maybe it’s because resources aren’t driving western policy in Central Asia so much as defense is?

The point being that you can’t argue with a committed ideologue.

Seriously Phil, what do you not get here? The case is seriously overstated. It’s not utterly without merit, but it just doesn’t explain a whole lot whe you pull back and look at more of the picture. It’s awful hard to convince me that a country that exports more oil than the Bahamas but less than New Zealand is an object of intense geopolitical wrangling for that reason. Gas, maybe, but again, we’re not in the game in any serious way, leading me to believe it’s just not that big of a priority for us.

Nathan June 21, 2005 at 2:58 pm

David, the dead horse I’m referring to is my own point that the “it’s all about oil” argument is dumb when it comes to Uzbekistan. It’s been a bit of a theme the past couple week since Johann Hari made the argument in a column a few weeks ago.

Tim Newman June 22, 2005 at 1:01 am

Nathan – “Alright, apart from Oxus Gold, Newmont, Baker Hughes, Trinity Energy, Mitsui, Texaco, Arsenal Energy (and any others which may have been overlooked here), what evidence is there that resource access is driving Uzbekistan’s relationship with the West?”

Oxus Gold, Arsenal Energy, Trinity Energy….yes, those giants of the US oil industry, all with links to the Bush administration no doubt.

Ah yes, Mistui – that other well known Western oil company.

Baker Hughes. Yes, they provide oilfield services, mainly drilling and mud pumping. Quite how this suits the purposes of US oilmen I don’t know, as Baker Hughes never actually own any of the oil they drill.

Texaco – providing some technology for the manufacturing of lubricants. Golly!

Right, enough of this: would all those who believe any major Western oil company is seriously considering investing in Uzbekistan, please would they point to ANY INSTANCE of where a REPRESENTATIVE OF THE COMPANY IN QUESTION (i.e. not a journalist from a left-wing newspaper) has indicated that they are doing so, or point to a PUBLICATION OR WEBSITE of THE COMPANY IN QUESTION (i.e. not a publication of a green lobby group) in which it explicitly mentions significant investment in Uzbekistan.

For every article or quotation presented, I will offer up a $10 for every one that I cannot match with 5 which refer to the Caspian or Kazakhstan – where the oil really is and, oddly, where the investment is actually going.

So come on: any takers?

Alexei June 22, 2005 at 4:55 am

My limited knowledge tells me to second Tim’s comments. Uzbekistan is self-sufficient in oil and that pretty much sums it up. It is a doubly-landlocked country (none of its neighbors has sea access, either), so it might be an excellent location for air force bases but hardly for oil and gas wells. When it comes to oil, investors would rather choose Kazakhstan. In gas, Turkmenistan is preferrable in the longer term (under Turkmenbashi’s son perhaps).

David June 22, 2005 at 5:41 am

Innovative idea, Tim – I like it, though I’m a bit unclear about the Kazakhstan/Caspian issue. Surely the most relevant questions are a) whether UZ has significant oil/gas resources b) whether, in fact, these resources are “coveted” by Western/US companies c) whether such “coveting” (sorry to use quotation marks Nathan, but I don’t see the problem with it!) has helped to determine US policy in UZ; specifically whether the US has been soft on human rights abuses it would normally condemn, for fear of jeopardising commercial interests.

I had a preliminary look around for statements from representatives of Western oil companies suggesting they were making significant investments in Uzbekistan, and I found this, from a senior Unocal exec, John J Maresca:

http://www.serendipity.li/wot/wsap212982.htm

“The Caspian region contains tremendous untapped hydrocarbon reserves, much of them located in the Caspian Sea basin itself. Proven natural gas reserves within Azerbaijan, Uzbekistan, Turkmenistan and Kazakhstan equal more than 236 trillion cubic feet. The region’s total oil reserves may reach more than 60 billion barrels of oil — enough to service Europe’s oil needs for 11 years. Some estimates are as high as 200 billion barrels. In 1995, the region was producing only 870,000 barrels per day (44 million tons per year [Mt/y])…

…By 2010, Western companies could increase production to about 4.5 million barrels a day (Mb/d) — an increase of more than 500 percent in only 15 years. If this occurs, the region would represent about five percent of the world’s total oil production, and almost 20 percent of oil produced among non-OPEC countries…

…One major problem has yet to be resolved: how to get the region’s vast energy resources to the markets where they are needed. There are few, if any, other areas of the world where there can be such a dramatic increase in the supply of oil and gas to the world market…

…Unocal envisions the creation of a Central Asian Oil Pipeline Consortium. The pipeline would become an integral part of a regional oil pipeline system that will utilize and gather oil from existing pipeline infrastructure in Turkmenistan, Uzbekistan, Kazakhstan and Russia…

…The Central Asia and Caspian region is blessed with abundant oil and gas that can enhance the lives of the region’s residents and provide energy for growth for Europe and Asia.

The impact of these resources on U.S. commercial interests and U.S. foreign policy is also significant and intertwined…

Developing cost-effective, profitable and efficient export routes for Central Asia resources is a formidable, but not impossible, task. It has been accomplished before. A commercial corridor, a “new” Silk Road, can link the Central Asia supply with the demand — once again making Central Asia the crossroads between Europe and Asia.”

This statement dates from 1998, and I honestly don’t know what the developments have been since then – but Maresca seems to have regarded Uzbekistan as a significant component of the Unocal energy strategy in the wider Central Asian region. Perhaps not the biggest, but certainly a significant one. He was also, clearly, lobbying for the US government to support that strategy.

The question of how large Kazakhstan’s oil/gas reserves are in relation to Uzbekistan’s seems less relevant to me than the question of whether there’s some money to be made in Uzbekistan and whether this fact has led the Bush adminstration to take a soft line on human rights abuses it would normally condemn. Presumably, if the commitment to human rights is weak enough, even “small change” could determine a change of policy!

Clearly, if this was the case, then the US would hardly be the only country in the world ever to put “dollars before ideals”. As Nathan points out, Russia and China have seemed especially shameless in that respect, and not only in Central Asia. Wider still, if you look at the line-up of EU and African countries implicated in the looting of the Democratic Republic of Congo, it’s tempting to believe that “dollars before ideals” is just the way of the world right now.

The point for me is that while we really wouldn’t expect much better from a lumbering tyranny like China, I’d always thought of the US as being a lot more principled than that.

Phil Bailey June 22, 2005 at 2:51 pm

Tim, you wrote

“Uzbekistan’s oil is a non-issue for anyone outside of Uzbekistan”

That is demonstrably untrue.

Making wagers and using capital letters in your post doesn’t make it any less so.

Tim Newman June 23, 2005 at 5:03 am

That is demonstrably untrue.

Demonstrate away then.

Tim Newman June 23, 2005 at 5:15 am

I had a preliminary look around for statements from representatives of Western oil companies suggesting they were making significant investments in Uzbekistan, and I found this, from a senior Unocal exec, John J Maresca:

etc.

He’s talking here in extremely broad terms, and has lumped Uzbekistan in with the rest of the Caspian when describing the Central Asia region as strategically important from an energy point of view. However, he is not advocating investment into Uzbekistan, he is advocating investment into Central Asia or which Uzbekistan is a part, but from a proven reserves point of view, a very small part. This extremely broad description of Central Asia’s energy is further demonstrated here:

Proven natural gas reserves within Azerbaijan, Uzbekistan, Turkmenistan and Kazakhstan equal more than 236 trillion cubic feet.

Azerbaijan, relatively speaking, has hardly any natural gas reserves it being ranked 61st in the world.

What he is saying is that the area that encompasses all of these countries have significant reserves, not that all the countries listed have significant reserves.

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