As Georgia scavenges for non-Russian natural gas sources after losing its Russian gas supplies earlier this week, hopes are increasingly focused on energy-rich Azerbaijan to pick up the slack. The Caspian Sea state has already supplied Georgia with millions of cubic meters of gas from its own reserves in a bid to keep heat on and power stations operational. But though Georgia would like to receive even more Azerbaijani gas, some Baku analysts contend that Georgia's expectations may be misplaced.
"Azerbaijan is like a guy of medium height who has found himself at an NBA (National Basketball Association) party," said Ilham Shaban, editor of the Turan Energy Bulletin. "It is funny to claim a serious place in the [natural gas] market when in the neighborhood of Iran, Russia and Turkmenistan. The country's resources are more than enough to meet domestic demand and to sell some gas to neighbors, but too minor to compete with such strong neighbors."
Under a bilateral mutual support agreement, the Azerigas State Company has supplied Georgia with 10 million cubic meters of gas since the January 22 explosions that severed the Mozdok-Tbilisi main and reserve gas pipelines, the company's press service reports. Though the country itself is experiencing its own energy crunch amidst record low temperatures, Azerbaijani President Ilham Aliyev told a January 24 cabinet meeting that the decision had been made at the request of Georgian President Mikheil Saakashvili to deliver gas and electricity to "a friendly neighbor".In the days following the explosions, the Georgian government has attempted to spark an international outcry against what it perceives as a Russian-staged energy crisis. Russia is Georgia's sole source for natural gas, and supplies a considerable part of the country's electricity as well. When the explosions in North Ossetia damaged a high-voltage power line and the main and reserve pipelines for transmitting gas from Russia, Georgians had to grapple with a heating and electricity shortage not seen in years. Later wind damage to a regional power line that supplies all of eastern Georgia only added to the troubles.
In a televised speech to the nation upon his return from the World Economic Forum late on January 26 to deal with the crisis, Georgian President Mikheil Saakashvili named energy security as one of the foundations for the country's independence. "This is the last winter when it will be possible to launch an energy offensive against us. . . because a new gas pipeline [Baku-Tbilisi-Erzrum] will be launched in the fall, because we are building our own HPPs [hydropower plants] and creating our own power [transmission] lines," the online news site Civil.Ge reported Saakashvili as saying.
In a January 9 op-ed in The Washington Post, Saakashvili called upon the international community to seek alternatives to Russian energy supplies, suggesting resources from Caspian Sea fields as among the most likely options.
Azerbaijan has been presented as a key candidate for turning that option into a reality. Although Georgia and Kazakhstan have discussed energy projects, the country, along with fellow Caspian Sea state Turkmenistan, is seen as far more dependent on Russia for access to European markets. [For background see the Eurasia Insight archive].
Azerbaijan is currently supplying Georgia with some 2 million cubic meters (mcm) of gas each day. Chances for increasing that supply, however, appear limited. The gas and 70-100 megawatts of electricity that Azerbaijan is supplying Georgia each day is the most that it can do, Georgia's ambassador to Azerbaijan, Zurab Gumberidze, told the Georgian news agency Prime News on January 26.
As of January 29 or January 30, Iran will begin supplying Georgia with gas via Azerbaijan, President Saakashvili announced in a televised cabinet session on Friday. "I think this is a very important breakthrough. And it should be understood in Russia as well that we now have an alternative," the online news site Civil.Ge reported the Georgian leader as saying.
Vasily Zinoviev, a senior executive at KavkazTransGaz, which handles gas distribution from Russia, told the Russian news agency Interfax on Friday that Russia should be able to restore gas supplies to Georgia by January 28. Several additional days will be required before the gas reaches consumers, however, the agency reported.
The fact that earlier deadlines for restoration of Russian gas supplies have been missed has left the Georgian government largely skeptical of such assurances. In recent days, the need to locate alternative energy supplies features as a recurring theme in officials' speeches.
To date, Georgia is the only country in the region that depends on Azerbaijani gas. But Azerbaijan cannot meet Georgia's total demand until the South Caucasus Pipeline, which will deliver gas from Shah Deniz, the country's largest offshore gas field, to Turkey, comes online, most likely not until 2007, commented Shaban. "The existing infrastructure is too old and is able to deliver a maximum of 3 mcm daily."
Shah Deniz has an estimated explorable yield of 675 bcm. However, the bulk of that total, 500 bcm, will not be available until 2033, Shaban forecast. Right now, Georgia is scheduled to receive 300 mcm annually from the field in return for allowing the gas to transit its territory en route to Erzerum, Turkey.
Another tricky issue is Georgia's ability to pay for gas beyond the 300 mcm. Talks are currently underway between Georgia and Azerbaijan for the purchase of up to an additional 3 bcm of Shah Deniz gas, David Ingorokva, president of the International Gas Corporation, which oversees Georgia's gas transmissions, stated on January 20, Georgian BS-Press news agency reported. The Georgian government, Ingorokva stressed, is ready to guarantee the payments and pay for gas upon delivery.
However, some Azerbaijani experts are doubtful about Georgia's ability to meet this promise. "Georgia is an insolvent country," Riad Mammadli, chief analyst at the non-governmental organization Oil Research Center, commented to Turan news agency in a January 19 interview.
At a January 20 cabinet meeting, President Saakashvili blamed former President Eduard Shevardnadze and Aleko Gotsiridze, former president of the International Gas Corporation, who signed the Shah Deniz agreement, for selling Georgia short. Terming the pair "enemies of Georgia," Saakashvili characterized the 300 mcm of gas too small for Georgia's needs. "Only an enemy could do that," he concluded, BS-Press news agency reported.
Ilham Shaban, however, argues that Georgia, in fact, benefited from the agreement. "Georgia's transit fee was doubled at the expense of Azerbaijan's share in the project. Besides, the gas price in the barter deal [gas in exchange for transit service] with Georgia was calculated according to a very moderate regional price rather than the world market price," the expert said.
But while Azerbaijan's status as an energy exporter may be attractive to Georgia, a lack of options for getting its gas to more distant foreign markets means that Azerbaijan could have difficulty competing with Russia as a major gas exporter, analysts say.
After its recent gas clash with energy giant GazProm, Ukraine, with a population of 49 million one of the largest European markets, was named as one potential market where Azerbaijan could challenge Russia's pre-eminence. Ilham Shaban, however, called the idea "nonsense."
"You need a 300-kilometer-long trunk pipeline in Georgian on-shore territory and a 500-kilometer-long underwater pipeline in the Black Sea just to deliver gas to Ukraine," Shaban said. "With its huge demand, the country will never be satisfied with Azeri gas and has to maintain other suppliers. Besides, Ukraine needs gas at low prices which will never justify the investments in this kind of infrastructure."
Nor is Western Europe likely to provide guaranteed demand for the huge volumes of gas required to make construction of a link between Erzerum and Western Europe cost-effective, he added.
British Petroleum, which oversees the consortium running the Shah Deniz project, itself recognizes that limited foreign markets exist. At an April 2005 press conference, British Petroleum-Azerbaijan Vice President Rob Kelly noted that Azerbaijan itself, with an estimated annual demand of 5 bcm, will be the "best market" for Shah Deniz gas in the second stage of the project, when the largest volume of gas is scheduled to become available.
The role of foreign energy companies in developing Azerbaijan's energy resources is another drawback, commented Inglab Ahmadov, director of the Public Finance Monitoring Center. [The Public Finance Monitoring Center operates with the financial support of the Open Society Institute. EurasiaNet.org is operated under the auspices of the Open Society Institute.] The country, he said, holds only "nominal" ownership of its explorable oil and gas resources, and Russian influence on the country is far from marginal. "Unlike Turkmenistan, Russia and Iran, Azerbaijan has already passed rights to the exploitation of its significant fields to Western companies. It is hard to imagine that the BP-led consortium will stand aside when the issue will be not only about world interests, but their profits."
Nonetheless, Russia's "energy war" with post-Soviet countries will not leave Azerbaijan unscathed, continued Ahmadov. "It is the beginning of a more serious war, and Azerbaijan will definitely be involved."
Rovshan Ismayilov is a freelance journalist based in Baku.