Will SOCAR Lose its Monopoly in Georgia?

• 01.15.2016, 21:03
• Narek Minasyan
•  "Insight" Analytical Center ,  Analytics

The prospects for diversification of Georgia’s gas supplies, as well as the tension between Georgia and Azerbaijan in that context have been quite actively discussed recently.

It is more than obvious that Georgia is determined quite seriously to secure alternative imports  and consider Russian gas as the main option. Even Rovgan Abdullayev, the Presidend of SOCAR, who visited Georgia just for that purpose, was not able to convince Tbilisi. Although the parties agreed that Azerbaijan would increase gas supply volume "as much as possible," trying to reach 7 million m³, however, after the meeting, Georgian Energy Minister Kakha Kaladze declared that Azerbaijan is not able to cover this year's gas shortfall and Georgia can expect additional volumes only in 2019, when "Shah Deniz 2" will operate.

The problem is that Georgia's gas demand has increased since 2012 by about 38% and the shortage has been covered with Russian gas. Despite assurances from the Azerbaijani side, the problem is artificial and SOCAR is fully able to cover Georgia's gas deficit, the increase of supplies from Azerbaijan has technical problems and cannot be solved without additional investments.

Taking into account that Georgia's gas consumption is forecast to increase due to new industrial projects, as well as the fact that Tbilisi cannot wait until 2019, it is quite logical that the need to secure alternative supplies should be transferred to the practical field. In this regard, the negotiations with the Russian "Gazprom" on the commercial gas imports caused furious reactions in some Georgian public and political circles. Most likely, Azerbaijani lobbyists did not spare efforts and energy on this.

The negotiations that were labeled "treason of the strategic ally", however, were quite pragmatic from the economic point. Georgian Energy Minister Kakha Kaladze has declared that "Gazprom" offers more affordable gas than SOCAR. It is noteworthy that some Azerbaijani analysts and lobbyists from Georgia before were successfully manipulating with people by announcing that Azerbaijan sells gas to Georgia in special terms and any attempt of diversification is a "stab in the back" for the friendly Azerbaijan. The real situation is the following: Georgia gets five types of gas from Azerbaijan: 1) Georgia as a transit country, according to the agreement, can annually gain about 500 million m³ of gas for $64; 2) 250 million m³ gas for $55; 3) approximately 500 million m³ gas (the so-called "social gas "), for $189; 4) Free gas, which is accounting for 5% from the transferred gas through the Baku-Tbilisi-Erzurum gas pipeline (about 400 million m³); 5) And the rest, which is mostly used in the industry, for $237. Georgia's current gas consumption amounts around 2.5 billion m³, and about half of the gas Tbilisi acquires for $237, which, actually, is not a proper price. In such conditions, it would be illogical if Georgia refused "Gazprom" offer of cheaper commercial gas.

It can be assumed that in addition to the Georgian-Russian talks, the supplies of Iranian gas to Georgia (especially through Armenia) would be quite painful for Azerbaijan. In this regard Kamel Ali Reza, the director of Iran's National Gas Export company, announced that Iran and Georgia have agreed on 500 million m³ gas supplies through Armenia. .

Considering all this, it can be concluded that in 2016 the energy picture of the South Caucasus will significantly change, which will surely influence also on political processes.