Wednesday, July 27, 2016


Caucasus Report

Gazprom Seeks Again To Pressure Georgia Over Gas Supplies

Hundreds of people have taken to the streets in Georgia to protest against Tbilisi's negotiations with the Russian gas company Gazprom. (file photo)
Hundreds of people have taken to the streets in Georgia to protest against Tbilisi's negotiations with the Russian gas company Gazprom. (file photo)
By Liz Fuller

Russia has again raised the possibility of curtailing gas supplies to Georgia at a time when Azerbaijan, the only alternative source, is unable to meet Georgia's expanding need in full.
 
Over the past four months, Georgian Energy Minister Kakha Kaladze has met four times with senior Gazprom officials to discuss possible changes in the tariffs Gazprom pays for supplying gas via Georgia to Armenia, and in the amount of Russian gas Georgia purchases.

Those talks have sparked protests by the opposition United National Movement (ENM), which accuses the current government of endangering national security by making the country dependent on Russian gas supplies. 
 
Such accusations appear overblown, however, given the comparatively modest volume of gas involved. That suggests that the ENM's position is strongly influenced by its desire to question the competence and pro-Western orientation of the Georgian Dream coalition, which defeated it in the October 2012 parliamentary ballot.
 
Provisional data from the Georgian Energy Ministry cited by the website civil.ge shows that in 2015 Georgia consumed 2.478 billion cubic meters of natural gas (compared with 1.91 billion in 2013, an increase of almost 25 percent).Of the 2015 total, 2.195 billion cubic meters, or some 88.5 percent, was supplied by Azerbaijan: 1.48 billion in line with a contract signed with Azerbaijan's state oil company SOCAR, and 712 million in lieu of transit fees for gas transported via the BP-operated South Caucasus Pipeline to Turkey from the first stage of Azerbaijan's offshore Shah Deniz field. 

Just 275 million cubic meters -- a little over 10 percent of the total consumed -- was supplied by Gazprom, of which 200 million cubic meters was transit fees for gas supplied by Gazprom to Armenia via Georgia. (Gazprom claims the total volume it supplied in 2015 was 300 million cubic meters.) 

Seeking To Monetize
 
Georgia has long been entitled to 10 percent of the gas supplied by Gazprom to Armenia as transit fees. That tariff, according to Vartan Harutiunian, CEO of Armenia's national gas company which is owned by Gazprom, is the highest in the world. 
 
Kaladze disclosed after the most recent round of talks that Gazprom has sought for the past two years to monetize the transit fee. 
 
He said that Georgia initially rejected that option, but that Gazprom has now threatenedto reroute its gas exports to Armenia via Iran as soon as it becomes technically feasible to do so -- which would of course deprive Georgia of any transit fees, either in cash or in kind.
 
Kaladze gave no indication of what the cash tariff Gazprom has proposed might be, or the likely cost of purchasing additional Russian gas to make up the shortfall. 

In 2015, in addition to the gas it received in transit fees, Georgia purchased 75 million more cubic meters of Russian gas at the price of $110 per 1,000 cubic meters. 
 
At the same time, Kaladze stated categorically that even if Georgia is constrained to purchase more Russian gas in 2016 than it has done in recent years, it will not reduce the amount purchased from Azerbaijan, which he described as Georgia's "strategic partner."

Street Protests

The Georgian opposition has convened three demonstrations, in October, November, and January, to protest the government's imputed intention of reducing the amount of Azerbaijani gas it imports and increasing the Russian share. And on January 22, the ENM formally asked President Giorgi Margvelashvili to convene a special session of the National Security Council to discuss whether purchases of Russian gas should be increased. 
 
The organizers of the January protest, attended by some 1,000 people, argued that the Georgian government's stance is all the more counterproductive and irrational insofar as Azerbaijan "is prepared to supply any volume of gas." 
 
Kaladze, however, said after he and Georgian Prime Minister Giorgi Kvirikashvili discussed the possibility of Georgia purchasing additional gas from Azerbaijan with visiting SOCAR President Rovnag Abdullayev on January 13 that Azerbaijan is not currently able to increase supplies for "technical reasons." He explained that the pipeline in question is already operating at maximum capacity. Kaladze said "we have a project" to build an additional gas pumping station to increase that capacity, but did not say who would provide the necessary investments.
 
The project will not, Kaladze admitted, be completed this year, which means the estimated shortfall in supply for 2016 could reach 300-400 million cubic meters, for which Gazprom is the most likely alternative supplier. 
 
On January 29, SOCAR announced that it has reached an agreement with the South Caucasus Pipeline operators to supply Georgia with an additional 50 million cubic meters during the winter months.
 
Asked about Georgia's vulnerability to pressure from Gazprom, U.S. Ambassador to Tbilisi Ian Kelly told journalists on January 18: "I think that Georgia does have a short term energy need, and I think it's prudent to talk to all potential energy suppliers." 

At the same time, he expressed tacit approval of the government's approach to the problem, saying: "I think it's always important that governments be as transparent as possible about their energy policy, and they have been very open with us. We have expressed our concerns that Georgia not become too dependent on one source of energy -- that they keep a good diversification of energy -- and we are satisfied with their explanations." 
 

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About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.