Bringing Russian and Iranian gas to the Georgian market: Challenges

By Bartosz Mendyk

 Abstract

 After the disintegration of the Soviet Union, the three South Caucasus countries found themselves in a power vacuum, which led to various geopolitical events and even catastrophes (such as territorial conflicts and separatism)

 However, this vacuum also enabled two of the newly independent South Caucasus countries – Azerbaijan and Georgia – to jointly implement major oil and gas projects, the Baku-Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi-Erzurum gas pipeline, both of which bypassed Russia. Initially, the two states were dependent on Russia which was a key transit country for Azerbaijan and a major gas supplier to Georgia.

 After August War in 2008, Georgia suspended its gas imports from Russia, except the volume received as a “transit fee” for the gas supplied to Armenia. Since 2007, Azerbaijan, by virtue of its vast energy resources, has been supplying the majority of Georgia oil and gas demand and almost completely met its strategic ally’s energy needs when the Russian supplies were cut down during 2008 war. However, a statement by Georgia`s Energy Minister Kakha Kaladze in September 2015 on the purchase of Russian and potentially Iranian gas by Georgia raised some questions.

 This article will examine the extent to which the purchase of Russian gas is realistic and compatible with Georgia`s national interests and to what extent it poses the risk to its relations with Azerbaijan, as well as the feasibility of bringing the Iranian gas to Georgia given the technical shortcomings and political backlash displayed by Russia.

 The authors` arguments are based on the reliability of Azerbaijan as both supplier and neighbor, as well as the technical difficulties and political repercussions respectively of bringing Iranian and Russian gas to Georgia.

 Azerbaijan-Georgia Energy Relations

 After gaining independence from the Soviet Union in 1991, both Azerbaijan and Georgia launched their independent energy policies. The energy cooperation between Azerbaijan and Georgia through the realization of the Baku-Tbilisi-Ceyhan (BTC), Baku-Tbilisi-Erzurum (BTE), Baku-Supsa pipelines and other energy projects had a significant impact on the wider region.1 The BTC, BTE and Baku-Supsa are essential .

 For the West, finding the alternative routes to bring Caspian oil and gas to Europe was crucial. The strategic vision of the government of Heydar Aliyev created the initial foundations of the East-West corridor, the development of which is proceeding smoothly today with new energy projects and initiatives.

 Today, this strategy is led by President Ilham Aliyev, who has paved the way for the implementation of the TransAnatolian Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP). An additional potential gas project that will link Azerbaijan and Georgia is the socalled Azerbaijan-Georgia-Romania-Interconnector (AGRI), which envisages bringing Azerbaijani gas to Georgian ports, converting it to LNG in liquefaction terminal and transferring it to Romania`s Constanta port in the Black Sea. The Memorandum of Understanding was signed back in September 14, 2010 between the presidents of Azerbaijan, Georgia and Romania in order to create a Joint Company to study the export possibilities from Azerbaijan and Georgia via Black Sea to Romania.

 The Azerbaijani gas will be delivered from Azerbaijan via pipeline to the Georgian port of Kulevi, where it will be liquefied and delivered to Romania and re-gasified.3 The nationalist vision and territorial irredentism of Armenia means that Yerevan has been excluded from regional integration while Georgia and Azerbaijan have been developing their relations in many areas, especially in the energy sector. This pragmatic approach has deepened Georgian-Azerbaijani relations, while Armenia remains isolated due to its bellicose policy toward Azerbaijan and occupation of Nagorno-Karabakh region (including seven adjacent districts) of the latter. Thus far, Azerbaijan and Georgia have consolidated their bilateral energy relations through projects and investment initiatives by Azerbaijan`s State Oil Company (SOCAR) in Georgia. Georgia annually receives millions of dollars from the tariff payments for the BTC and BTE pipelines.

 SOCAR Georgia Petroleum, a subsidiary of SOCAR, is one of the largest taxpayers in Georgia and a major investor in Georgia`s oil/gas terminals and warehouses, as well as the retail and wholesale of oil/gas and their products. SOCAR owns hundred gas stations, operates the natural gas distribution network, and owns and operates the Black Sea port of Kulevi.

 It is currently Georgia’s main supplier of crude oil, oil products and natural gas. SOCAR has invested billions in the Georgian economy, including the development of the Kulevi terminal and port.5 Moreover, Azerbaijan, Georgia and Turkey are in the process of realizing the BakuTbilisi-Kars (BTK) railway project. The BTK will effectively open a new railway corridor from the Caspian Sea through the territories of Azerbaijan, Georgia and Turkey to Europe, eventually precluding the need for sea transportation, once the planned railway tunnel under the Bosporus Strait in Istanbul is complete. 6 Following the BTC and BTE pipelines, the BTK project will be third trilateral project between Azerbaijan, Georgia and Turkey that isolates Armenia in terms of transport routes. It will also form part of the network of routes that connect Asia and Europe, known as the Iron Silk Road.

 However, political transitions in Georgia in 2003 and 2012 have tested bilateral relations between Azerbaijan and Georgia. Both of the previous governments of Georgia had very close relations with Azerbaijan. The power transition from the United National Movement to Georgian Dream coalition in 2012 led by billionaire Bidzina Ivanishvili created an uneasy political environment in Georgia. Ivanishvili`s political inclinations and decisions, including request for a price discount on Azerbaijani gas imports, a statement on the alleged inefficiency of Baku-Tbilisi-Kars railway, comments on the restoration of the transit railway system through Abkhazia to Armenia, 8 plus former Economy Minister George Kvirikashvili`s statement on the revision of oil and gas contracts with SOCAR, could harm Georgia`s national interests and bilateral relations with Azerbaijan. The possible opening of railway system through Abkhazia would only serve Armenian interests, and is not compatible with Azerbaijan`s ‘isolation policy’ towards Armenia, due to the latters occupation of Azerbaijan`s territories. Meanwhile, it would endanger Georgia`s preferred partner status in the region for Azerbaijan. In 2013, Ivanishvili visited Baku to repair the situation, and Baku was able to demonstrate a stronger position on the impossibility of opening Abkhaz railway, and did not make any compromise regarding the price of gas

 You can read the full article at : http://cire.pl/item,124610,2,0,0,0,0,0,bringing-russian-and-iranian-gas-to-the-georgian-market-technically-challenging-economically-unfeasible-and-politically-costly.html