Russia, Uzbekistan light flame at major gas field

BUKHARA, Uzbekistan Thu Nov 29, 2007 9:12am GMT

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BUKHARA, Uzbekistan Nov 29 (Reuters) - Russia's LUKOIL (LKOH.MM) officially started up output from a major gas field in Uzbekistan on Thursday in a project expected to contribute one fifth of the Central Asian state's gas output.

Russia's First Deputy Prime Minister Sergei Ivanov and top Uzbek and LUKOIL officials toured the Khauzak deposit, tucked in a barren Uzbek steppe near the Silk Road town of Bukhara, after lighting a symbolic torch at the site.

Russia, the world's largest natural gas producer and a major supplier to Europe, depends on gas imports from Central Asia where it pays below-market prices.

The two nations used the opportunity to highlight increasingly close ties after years of chilly relations.

"Uzbekistan's president once again reassured us that Uzbekistan's long-term foreign policy, both in politics and business, is closely tied to Russia, and that this policy is not susceptible to sudden changes," Ivanov told reporters in Tashkent on the eve of the Bukhara ceremony.

Khauzak is part of the wider Kandym-Khauzak-Shady-Kungrad project, developed jointly by LUKOIL, with a 90 percent stake, and Uzbek state energy company UzbekNefteGaz which controls the rest. A 2004 production sharing agreement will last 35 years.

Partners in Khauzak, near the Turkmen border in south-western Uzbekistan, share output on a parity basis at the field which technically started production earlier this month.

Khauzak is due to reach maximum capacity by 2012-2013 and produce more than 11 billion cubic metres of gas, or about one fifth of Uzbekistan's current total natural gas output.

LUKOIL said Khauzak is the biggest investment project in Uzbekistan with a total of $350 million already committed. Total investments are expected to exceed $3 billion, it said.

Operators plan to drill over 160 production wells at the field, and build over 1,500 km (932 miles) of pipelines as well as a gas processing plant with a capacity of 8 bcm per year.

In 2006, Uzbekistan produced 62 bcm of gas and exported 12.6 bcm, including 9 bcm to Gazprom. Central Asia's top natural gas producer, Turkmenistan, expects to produce about 80 bcm of gas this year.

Russia is the main export destination for Uzbekistan, whose pipelines are controlled by Gazprom. But Uzbekistan is exploring new exploring routes, and earlier this year agreed to build a new pipeline to China at an unspecified date. (additional reporting by Tanya Mosolova in Moscow; Writing by Maria Golovnina in Almaty)