The news that leading Italian companies will participate in the modernization and reconstruction of Uzbekistan’s gas distribution system at first glance seems quite ordinary and cannot stand out in the daily flow of ordinary people.
It seems to be a perspective and ambitious project that is aimed at attracting new investments and jobs in the developing economy of Uzbekistan.
But is it really so, and where is the strategic interest of the Russian monopolist Gazprom and what threats it could bring to the whole oil and gas sector?
It is specified that according to the agreements, Uzbek gas operator Hududgaztaminot together with Pietro Fiorentini, one of the world’s key manufacturers of gas equipment, will launch a project for the modernization and reconstruction of Uzbekistan’s gas distribution system.
The project will be financed by SACE (Italy) in the amount of 200 million euros. In addition, there are plans to establish a School for Training Gas Engineers on the basis of the HGT Training Centre.
Gazprom’s presence in Uzbekistan
According to experts, many gas projects in Uzbekistan have long been controlled by Gazprom, with contracts going to companies that are affiliated with the Russian monopoly in general the authorities are losing control over strategic resources.
In their view, the Uzbek authorities are now losing control over the Shurtan gas and chemical complex. In addition, they have lost control of the BNPZ, FNPZ, the Gasli gas-chemical complex, aviation fuel supplies and aircraft fuelling in Tashkent and the Tashkent region.
“In essence, the gas industry is already under Gazprom’s control, while Lukoil accounts for 1/4 of Uzbekistan’s gas production under the PSA agreement”, the channel administrators concluded.
How did Gazprom structures become responsible for Uzbekistan’s new fields?
The state programme to increase hydrocarbon production in 2017-2021 was approved in Uzbekistan in 2017 by presidential decree, Openmedia reported. Its goal was to develop oil, gas and gas condensate fields in the Ustyurt, Bukhara-Khiva, Surkhandarya and Ferghana regions and increase gas production by 53.5 million cubic metres or 87%, gas condensate by 1.1 million tonnes and oil by 1.9 million tonnes. The total cost of the program was then estimated at $3.8 billion, and the first phase, scheduled for 2017-2018, at about $2 billion.
The operator of the first stage of the program was a subsidiary of Gazprom, which took a loan from Gazprombank to pay the contractors, who were entities affiliated with the bank.
The government commissioned Natural Gas-Stream, a joint venture set up a year earlier for another project to explore and develop fields in the Ustyurt region, to implement the first phase. Uzbekneftegaz, the country’s largest state-owned corporation, Russia’s Gazprom and Cyprus-based Almax Holding set up the joint venture.
Government documents said Uzbekneftegaz and Gazprom participate in the joint venture on a parity basis, without mentioning Almax Holding’s share.
“Uzbekneftegaz was to invest US $504m of its own money in a new production-increase programme, while Natural Gas-Stream was to raise about US $1.489 billion in foreign loans. In return, the government allowed the joint venture to make money for the programme from commissions on gas exports.
The Cabinet had to approve the amount of gas to be transferred to Natural Gas-Stream every year. (For example, in May 2019, a Cabinet resolution allocated more than 1.4 billion cubic metres of gas for 2019-2020, based on an estimated export price of $185 per thousand cubic metres).
The Cabinet of Ministers also instructed Natural Gas-Stream to select contractors for the programme through a tender in order to “take the procedure out of bureaucratic control and speed up the implementation of the programme”.
And the conclusion of all these schemes is the news that at the end of January 2023, Uzbekistan and Gazprom signed a so-called road map for cooperation in the gas sector. The key points of the agreement were:
- interaction in supplying Russian gas to Uzbekistan via Kazakhstan;
- cooperation in gas processing;
- transportation of gas to other export destinations
Pietro Fiorentini and its Connection to Russia
Founded in 1940, Pietro Fiorentini S.p.A. has been at the forefront of the gas industry. Today, Pietro Fiorentini S.p.A. is a globally recognized leader in the production of components and systems for regulating and measuring natural gas and other gaseous media.
Since at least 2010, it is possible to trace the public communication of the Italian company with the Russian monopolist on the oil and gas market. It is known that in January 2010 in St. Petersburg, Russia, the meeting was attended by Sergey Gustov, General Director of Gazpromregiongaz (a subsidiary of Gazprom), deputy directors General Vladimir Zhelanov and Vladimir Voikov, and other executives of the company. The Italian delegation was headed by Gianluigi Gatti, Commercial Director of Pietro Fiorentini.
The negotiations resulted in an agreement on terms and conditions of delivery of equipment for Gazpromregiongaz, in particular, domestic and industrial gas-compressor equipment.
Also, an eloquent example is the Italian company’s cooperation with another gas and oil supplier, Rosneft.
Rosneft and Pietro Fiorentini, a manufacturer of high-tech equipment in the Italian industry, agreed to extend the existing agreement on production cooperation until the end of 2019 and signed a new agreement to develop technological cooperation between the companies. The Russian oil company said in a statement.
“The document provides for additional pilot tests of hydrocarbon production volume measurement equipment (multiphase crude gas flow meters) and HIPPS hermetic high-pressure protection systems produced by Pietro Fiorentini. In case of their successful testing, the parties will consider the possibility of localisation of metering equipment production as well as other products and services that may be of interest to Rosneft,” the oil company said in a statement.
Technical cooperation between the companies started in May 2017. The first tests of the multiphase flowmeter were carried out at one of the Company’s oil and gas fields during the 2017-2018 winter period and confirmed the performance of the equipment.
In this context, there was a meeting with Italian Prime Minister Paolo Gentiloni in May 2017, where Mr Putin and Mr Gentiloni witnessed the signing of A production cooperation agreement between Rosneft and Pietro Fiorentini.
Despite such clear indications that Gazprom has not only an interest but also a direct influence on the Uzbek gas transmission system. Taking into account the fact that the Central Asia-Centre gas pipeline system, a system of pipelines running from Turkmenistan through Uzbekistan and Kazakhstan to Russia, belongs to Gazprom, we can say with some certainty that Gazprom has after all firmly established itself in Uzbekistan.
The Italian company, which, we are told, is meant to modernise and improve Uzbekistan’s gas transportation system, could be beneficial for the Russian monopoly. It is Gazprom that is already reverse-supplying its gas to Uzbekistan through its pipe, thereby pushing the Uzbek leadership, including the Ministry of Energy.
Russia will continue to lobby for its interests in the context of increasing gas supplies to Asian markets, in particular a strategic partnership with China and partly with India. The only question remains whether Turkmenistan and Kazakhstan will cede their pipeline to direct gas supplies from Russia to China.