Zeynal Bayramov: Gas factor in Azerbaijan-Georgia relations

Azerbaijan and Georgia have always been good neighbors bound with political and economic relations. Oil and gas are Azerbaijan’s wealth, but they will not bring incomes unless delivered to customers. This is what makes Georgia a valuable partner, since the shortest route to the Black Sea ports extends via its territory. Azerbaijan’s leadership appreciates the transit corridor via Georgia.

Ilham Shaban, Head of the Caspian Barrel Center for Oil Studies says Georgia is a window to the world markets for Azerbaijan’s energy resources.

Georgia pays much attention to gas supply problems. By 2016, over 200,000 news consumers were connected to gas supply network in 600 populated areas throughout Georgia.

Deputy Prime Minister and Energy Minister of Georgia Kakha Kaladze says 75% of the country’s population will have gas supply by the end of 2017.

Evidently, such market is quite profitable and Azerbaijan does seek to gain and reserve it. Meantime, Azerbaijan’s energy resources meet stiff competition with Russia and Iran.

State Oil Company of Azerbaijani Republic (SOCAR) entered Georgia’s market in 2009 under a contract with the government. The company operates with profits, earns and reinvests in Georgia’s economy.

Ilham Shaban believes that to meet the stiff competition in the field, Socar needs to wage an efficient and flexible policy.

“This means that we need to offer more favorable terms to ensure our presence,” Shaban says.

The expert says Azerbaijan will be transporting 24 billion cu m of gas via Georgia in three years, 30-35 billion cu m of gas in eight years, and perhaps 40 billion cu m of gas in fifteen years.

These words run contrary to the expert assessments made before. The maximum recovery at Shah-Deniz-1 field was estimated at 10 billion, and capacity together with Shah-Deniz-2 was estimated at 25 billion. Experts believed that Shah-Deniz-2 would replace Shah-Deniz-1.

Domestic consumption in Azerbaijan exceeds 10 billion. More than two billion is lost in the gas distribution network. Certain volume of gas is pumped back to the holes to support pressure. In such case, it is not clear where they took the above figures.

As to more favorable terms, Georgia receives 5% of Azerbaijani gas for transit, but there is also another gas pipeline in its territory that delivers gas from Russia to Armenia. Gazprom leaves 10% of transit gas to Georgia as payment. It is normal that Georgia’s leadership held talks with Gazprom. Evidently, Socar needs to display flexibility in practice.

Georgia’s leadership faced harsh criticism by opposition parties that slammed the authorities for betraying national interests. Policy may dominate economy once, not forever. It is very hard to persuade consumers that it is more beneficial to get 5% instead of 10%.

Kakha Kaladze said Azerbaijan almost fully satisfies Georgia’s demand for natural gas. In the current year, the country will need 2.3 billion cu m of gas. The Azerbaijani gas is transited via Gazimagomed-Gazakh-Gardabani pipeline.

Ilham Shaban also said that “as early as in 2021, Georgia will receive more than 1 billion cu m of gas from Azerbaijani transit. In turns out that almost half of the country’s demand for gas will be satisfied with the gas received for transit of Azerbaijan’s gas. Actually, the country will be receiving natural gas without compensation.”

The phrase “without compensation” sounds extremely naïve.

Ilham Shaban, Head of the Center for Oil Studies, cannot but know that nothing is provided without compensation in economy and that it is Socar’s payment for transit. Furthermore, it is half as much as Gazprom’s payment. Such bold statements may insult Georgian colleagues, anger the population and cause numerous unwelcome problems for Socar.

International sanction against Iran have been lifted and a new player with big resources and possibilities have emerged. Did Socar win its rival Gazprom with purely economic methods? Unfortunately, no. Luckily for us, Georgia has close friendly ties and even allied relations with Turkey and Azerbaijan.

Speaking of Azerbaijan-Georgia-Turkey energy bridge, Minister Kakha Kaladze said the project is being successfully implemented.

“In 2016, Azerbaijan supplied about one billion kWh electric power to Turkey via Georgia for the first time,” Kaladze said.

A powerful lobby protected SOCAR’s interests in Georgia and any attempts of Georgia’s government, specifically Kakha Kaladze, to act pragmatically by starting talks with Gazprom, were blocked actually.

However, SOCAR should not rely on these factors permanently and needs to make its activity economically more attractive.

Georgia weighs privatization of Georgian Oil Corporation JSC, though, as Kaladze said, no final decision has been made yet. The minister said SOCAR should demonstrate more activity in this process. It is the key supplier (78% of total) of gas now. Besides, a third part may demand capacities to pump gas via the Southern Gas Corridor.

Experts say such opportunity will emerge in 10 years and it will be 5 billion cubic meters, no more. However, everyone knows that even the most experienced experts may be mistaken. Anyway, SOCAR has much to do to improve its management and retain its market positions in Georgia.

Zeynal Bayramov