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Georgia is Capable for Making Great Geopolitical Breakthrough in Gas Transit Issues

The agreement that we have concluded with SOCAR to receive additional 200 million cubic meter gas is the continuation of the policy that the Georgian Energy Ministry has carried out so far.

It is also very important that we have maintained the 10% gas volume from Russian gas transit through the North-South main gas pipeline. At the same time, the Russian party has declared as if it had made an exception for Georgia to pay in kind for supplied natural gas. This information is not true.

Similar practice exists, for example, the gas supply from Second Gas Corridor from North Africa to Europe, namely, from Algeria-Tunis to Italy. Algeria applies the payment-in-kind mechanism in relation to Tunis. The analogical payment regulations are applied in the Algeria-Morocco-Spain direction.

Thus similar practice is applied worldwide and we strive for continuation of similar relations with SOCAR, because Shah-Deniz 2 project will commence in 2018 with 16 billion cubic meter of natural gas, of which 6 billion cubic meters will remain in Turkey and the remaining ratio will be directed to the European direction.

The gas pipeline will cross the territory of Georgia too and we will be able to receive a certain volume of natural gas free of charge or at preferential rates. Experts assert that Georgia may receive about 1 billion cubic meters of natural gas and this will be a vital importance fact for economic growth and GDP upturn.

In his interview with the bfm Zurab Garakanidze, expert in energy issues, overviews this and other interesting issues.

Oil prices have considerably declined in the last period, but international experts expect the prices to rise starting 2017. Consequently.

How beneficial conditions has Georgia received from SOCAR and Gazprom in the long-term period?

Starting from the Bloomberg ending with the World Bank (WB), all of them speak out the same consideration, because gas tariffs are calculated from oil tariffs formula and therefore, natural gas prices will also increase. Therefore, the payment in kind for gas is of crucial importance.

At the same time, it is worth noting one important event, namely, the world gas market will  be created. From the USA to Europe the first liquefied gas was transited by tankers and Poland was the first country to receive this liquefied gas. Moreover, sixteen European seaports are ready to receive the mentioned liquefied gas. This is a historic event.

Experts assert that 50-70 tankers can supply the same volume of natural gas to Europe as Russia would supply to Europe through the Northern Stream 2 gas pipeline.

Therefore, the USA can act as a serious competitor in relation to Russia. Amid similar competition, Russia will face difficulties with maintaining the monopoly on the European market.

According to the statement by the Energy Minister, SOCAR has reduced social gas supply to Georgia, but no specific figures were mentioned. Consequently, this unclearness generates speculation hazards. If we take into account that the Authorities continues subsidizing the social gas tariff amid the depreciated GEL exchange rate.

Do you think the SOCAR decision is of symbolic character, even more so the parliamentary elections are coming?

Politicians apply similar methods, as a rule, but today the price of SOCAR gas per 1000 cubic meters ranges from 110-130 USD.

The Russian gas price is the same, in practice. This tariff is very profitable for us if we take into account the Azerbaijani gas volumes. We should not  ignore the fact that one of the main preconditions for Georgia’s integration into the European energy commonwealth is a removal of this differentiation.

This signifies the gas trans-boundary trade should be the same as in relation to the remaining part of Europe. Consequently, these preferences may be subjected to cancellation, but there is another side too – the ratio of hydro resources in electricity generation makes up 85% and only 15% is generated by steam power plants. Therefore, electricity tariff reduction is absolutely realistic.

The fact a major part of natural gas is supplied by Shah-Deniz Consortium is appraised as much breakthrough by Georgian citizens.

What is your opinion on this mechanism of gas reception and what preconditions have ensured Georgia’s success?

The issue is of the gas that should be received from the South Caucasus gas pipeline that is owned by several parties.

Consequently, based on negotiations, reception of a certain part of the natural gas volume is a successful step, even more so, if the payment in kind mechanism is maintained in relation to the Russian party.

Additional factor is expected to raise prices at the end of the year. I find absolutely acceptable to keep negotiations with the Russian Federation for commercial interests to receive additional volumes of natural gas, even more so politicians and experts forget that SOCAR maintains 100% state monopoly like Gazprom.

Azerbaijan maintains monopolistic condition on the market, because SOCAR dominates in the Consortium. Can we consider this source to be the opportunity for diversification of the supply?

The current situation cannot be called as a diversified situation, because all textbooks of energy security suggest that at least three sources are required to ensure energy security of the country.

Therefore, the TransCaucasus Project inauguration with the EU support is of crucial importance for us. The construction works are expected to start in the near future by consent of the negotiating parties.

Moreover, for some reasons, our experts avoid mentioning the Iranian source. This country is a major mining country worldwide and it strives for penetrating the European market through the territory of the Caucasus. There is much probability that because of complicated relations with Turkey, Iran may offer cooperation to Georgia for employing the Black Sea seaports.

These relations create best solutions for Georgia in the current situation. This is a real hub. If Georgia becomes a hub for the North-South and East-West transit directions, this will be much geopolitical breakthrough.