Turning gas into plastics: Uzbekistan focuses on adding value [Gas in Transition]
In Central Asia, a region characterised by only glacial economic and political change, Uzbekistan stands out. Under President Shavkat Mirziyoyev, who assumed power after the death of strongman ruler Islam Karimov in 2016, the country has seen radical reform. It has shed its hermit status and opened itself up to foreign investment, while easing economic restrictions and privatising large swathes of the economy.
The key buzzwords in Mirziyoyev’s economic plan are adding value, including in the country’s natural gas sector. Uzbekistan is blessed with substantial gas reserves, but the government wants to use this resource to develop higher-value products.
.png)
Credit: MTO GCC
From gas to plastics
This is the thinking behind the $3.3bn Methanol-to-Olefins Gas Chemical Complex (MTO GCC), which is under development in a newly-created free economic zone not far from Uzbekistan’s ancient Silk Road city of Bukhara. The largest project of its kind in Central Asia, MTO GCC is due on stream in 2026, and will convert 1.3bn m3/year of domestically-produced gas into methanol, which will then be used to create 1.11mn tonnes/yr of plastics and other polymer products. Its developer is Saneg, Uzbekistan’s largest private oil and gas company.
“MTO GCC demonstrates that the business environment in Uzbekistan is different now,” Bakhodur Khafizov, CEO of the Karakul Free Economic Zone (FEZ) where the project is located, tells NGW. “We’re switching to a new way of managing our resources, we’re attracting new investments, and we're ready to work with international businesses. In this part of the world, MTO is an unprecedented project, and demonstrates that Uzbekistan is a new growth point with huge potential.”
Uzbekistan is double-landlocked, presenting a challenge for exporting goods to global markets. But the majority of MTO GCC’s production – 56% – is expected to be sold locally, substituting imports. China, Turkey, India, Central and Western Europe and other CIS countries are earmarked as target markets for the rest.
The production mix includes 350,000 t/yr of polypropylene, 300,000 t/yr of polyethylene terephthalate, 280,000 t/yr of high-density polyethylene, 100,000 t/yr of ethylene vinyl acetate and 80,000 t/yr of low-density polyethylene. This is the first time some of these products have ever been made in Uzbekistan. They will be used for creating finished products for over 20 sectors of the Uzbek economy, including light industry, medical products and devices, textiles, automotive manufacturing, packaging and building and construction.
MTO GCC will serve as an anchor for a host of other projects in the Karakul FEZ. Saneg has separately teamed up with national oil company Uzbekneftegaz to develop ArkChemical, another facility at the same site that will process 430,000 t/yr of naphtha into 280,000 t/yr of ethylene, 100,000 t/yr of propylene and 50,000 t/yr of pyrolysis for use as additional feedstock at MTO GCC. The facilities planned at the zone will use MTO GCC’s products as feedstock, for developing fertilisers, textiles, flooring and carpeting and construction supplies. The zone will be serviced with a railway, with water supplied from the Amu Bukhara canal.
“The cluster model that we’re using allows us to implement these changes efficiently and at an accelerated pace, thanks to cumulative effect and vertical integration,” Khafizov says. “The government is the creator of good conditions for development, Saneg as a gas producer, the gas-chemical cluster as a processor and end-product producers as residents of the FEZ.”
Credit: MTO GCC
Progress and financing
Even though its expected launch is only three years away, the 243-hectare site where MTO GCC will be built is currently largely empty, save for a visitors’ setting and some large warehouses for building pipes and other needed materials. However, the site has been levelled and long-lead equipment and machinery have been ordered. Last month the project’s first reactor arrived, produced by India’s Larsen & Toubro.
“As for procurement and earthworks, they are in full swing,” MTO GCC’s technical director, Ruslan Navruzov, says. “We’ve already contracted or selected contractors for around two-thirds of all mechanical equipment that we require. Site preparation works are underway, and 100% of the long-term production equipment has already been ordered.”
In the spirit of Uzbekistan’s new embrace of economic liberalisation, MTO GCC will be privately-funded. Saneg is putting up $1bn of the project’s $3.3bn cost itself, and is in talks to secure further financing from international banks and export-import agencies. The fact that major, well-known international companies are providing the project's designs, technology and equipment makes it more attractive for financing on favourable terms, Navruzov says.
The list of foreign participants in the project is long. White & Case and Mott Macdonald are serving as legal and environmental advisors respectively, while engineering and design partners include Chemtex, Scientific Design Co., GS E&C, Hyundai E&C, ECI Group and Wood. Among the licensors are Sinopec, Air Products, Lummus Technologies Koch, Grace, Chevron Phillips Chemical, Versalis and Topsoe.
MTO GCC has buyers in place for around 60% of future production, giving lenders more security. Navruzov is confident that there is demand for 100% of its capacity, “but we aim to maximise profits by selling part of the production on the spot market.”
Strengthening the appeal, MTO GCC has sought to burnish its environmental social and governance (ESG) credentials. More than 97% of the water used at the complex will be recycled, and there are plans to plant trees in the surrounding area. According to its environmental and social impact assessment (ESIA) report prepared by Mott Macdonald, the project will comply with best industry practices on avoiding fugitive emissions. Though linked to the electricity grid, facilities in the Karakul FEZ will also be supported by a 500-MW solar power plant, which is currently at the pre-FEED stage of development.
Government support comes in the form of the special legal regime at the Karakul FEZ. MTO GCC will enjoy 50% off its corporate profit tax for three years after the project’s commissioning, and exemptions on land, property and water taxes for its entire lifetime.
Gas supply
As noted, Saneg will supply the natural gas needed for the project from its own fields. As part of Mirziyoyev’s shake-up of the energy sector, the company was handed rights to 103 previously state-owned oilfields in 2019, with the mandate to boost ailing production at their mostly mature reservoirs. The company has since acquired one of Uzbekistan’s two oil refineries, located in Fergana.
While oil is its main focus, Saneg has managed to more than double gas production at its fields over the past three years, to 1.26bn m3 in 2023. It aims to lift this to 3bn m3 in the future, by exploiting tight reservoirs underneath conventional formations.
Uzbekistan’s national gas production is in decline. It fell for the fifth year in a row in 2023 to only 46.7bn m3, according to state statistics. But the government has resorted to Russian gas to plug the gap in supply, taking advantage of Gazprom’s need to find new customers to offset the loss of most of its market share in Europe over the past two years. It also plans to halt exports to China to use more at home for projects like MTO GCC, in line with the adding-value strategy. Why sell gas when you can sell something better.