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Georgia's Flirtation With Gazprom Is Driven by Rising Gas Demand

There's no way around it. Georgia is looking at rising demand for gas and needs the best price - diversification makes every sense

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Originally appeared at Natural Gas Europe

Amidst Georgia's talks with Gazprom over gas transit on the one hand and demanding Iranian gas in other, Azerbaijani President Ilham Aliyev has said that his country has enough gas to supply its neighbors for the next 100 years.

This statement was made in a meeting last week with Mr. Aliyev's Georgian counterpart, Giorgi Margvelashvili, where the Azeri President reinforced the massive size of Azerbaijan’s gas reserves, which are enough to supply its domestic needs, those of its neighbors, as well as Europe's.

Azerbaijan is Georgia’s main gas supplier. The country delivers gas to Turkey through Georgia.

Mr. Aliyev’s statement on November 6th came while Georgian Energy Minister Kakha Kaladze announced earlier that Azerbaijani gas cannot meet Georgia’s demands in 2016.

Talks with Russia

Georgian officials have several times demonstrated their willingness for Russian gas. Georgia and Gazprom met (in Brussels and Florence) together two separate times over the past months.

Some Georgian politicians are pessimistic about gas talks with Russia. For instance, Roman Gotsiridze, advisor of ex-President Mikheil Saakashvili said “In case Georgia needs more gas, it can request from Baku, because the gas consumption growth is not significant and involving Gazprom in Georgian markets can undermine the country’s economy and damage economic independency like what has done in Armenia."

On the other hand, some Georgian politicians demonstrated a willingness towards Iranian gas. On November 7th Mr. Kaladze stated the possible beginning of supplies of Iranian gas to Georgia in 2016. According to him, Georgia has no alternative but to import gas from Iran through Azerbaijan or Armenia.

However, Mamuki Areshidze, a Georgian expert, believes that Armenian magistral gas pipelines are under the control of Russia and Moscow will never allow Iranian gas to be transited via these infrastructures.

Georgia's gas demand growth

A well-placed Georgian source told Natural Gas Europe anonymously that Georgia is preparing to commence thermal power plants and needs an additional 250-300 milion cubic meters per annum of natural gas in 2016.

Turkish company Çalik Enerji signed a $220 million contract with Georgian Oil and Gas Corporation as well as the Georgia Partnership Fund in 2014 to construct a 230-MW thermal power plant, which is expected to become operational in late 2015.

On the other hand, according to weather forecasts, Georgia would face a colder winter in 2016 which would cause an increase in household consumption of gas by 150-200 mcm. Therefore, Georgia’s need for more gas is real.

Armenia also is preparing to operate Razdan thermal power plant’s 5th block and raise this plant’s output to full capacity level in 2016. Russia is negotiating with Georgia to evaluate the possibility of increasing gas delivery to Armenia.

The source explalined that Georgia eyes gas intake versus providing gas transit service and also wants to get cheap Russian gas.

He said that Georgia knows that Shah Deniz shareholders will never agree to sell cheap gas to this country, because the consortium started investing $28 billion towards the development of Shah Deniz Stage 2 since 2013. Regarding oil company losses due to low oil price, shareholders do not want to lose more with selling cheap gas.

Earlier, Vice President of SOCAR Khoshbakht Yusifzadeh announced that during 10 months of 2015, Azerbaijan supplied Georgia with 550 mcm. Regarding this fact that Azerbaijan exported 4.8 bcm of gas to Turkey through Georgia and Tbilisi takes 5 percent of this volume as the transit fee, then the real amount of Azerbaijan’s gas export to Georgia stood at about 310 mcm in 10 months.


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