Caspian Energy Journal Caspian European Club
Wednesday, 14 October 2015 17:00

Gazprom returns to Azerbaijan and Georgia Featured

Apparently under the pressure of the ongoing antitrust directives of the third energy package practiced by the EU - associative partner of Georgia - Energy Minister of Georgia Kakha Kaladze has decided to increase the supply of Russian Gazprom to Georgia. Gazprom CEO Alexei Miller and Minister of Energy and Natural Resources of Georgia Kakha Kaladze met in Brussels last week to discuss supplies of Russian natural gas to Georgia and its transit to third countries, said the press service of the company.

What is more, according to the statement of Kakha Kaladze, Georgia would like to buy more Russian gas, TASS reports. Azerbaijan is now the main supplier of natural gas to Georgia, the minister explained. “But larger gas supplies from the Russian Federation at competitive prices are not ruled out,” he said.

Georgia is interested in a greater load on its gas pipelines, Kakha Kaladze said. In addition, the Georgian side is interested in supplies of Russian gas from independent producers. “We should not depend on a single supplier,” the minister said.

These are probably the most long-awaited words that Alexei Miller has heard throughout the past 12 years, ever since 2003 when the EU started introducing the unbundling rules to separate production, supply and sales in the home market into independent sectors. And, perhaps, namely these worlds will harbinger future changes in the positions of the Russian state-own company in the world markets. For a long time, namely since 2012, Gazprom has been in the focus of legal claims of the EU’s antitrust regulators. Only in April this year, the European Commission formally accused the Russian company of violations in Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. According to the statement by Gazprom, in the second quarter of this year total exports of the Russia's monopoly plunged by 8% to 47.27 billion cubic meters of gas due to the crisis of gas overproduction in Europe itself. It resulted in a big fall in deliveries to the Netherlands, by 64%, and to the countries of Eastern Europe as well: to Hungary by 20%, to Poland by 14%, to Slovakia and the Czech Republic by almost 30%. By bad chance, the first trading session of the auction, which Gazprom carried out to sell gas to Europe, ended in failure. This was reported by Interfax. The auction started on September 7 and lasted until September 10. The auction organizers planned to sell 3.2 billion cubic metres of gas to be then transported via the Nord Stream gas pipeline at prices above long-term contracts for gas supplies to Europe. “The process can be described only upon results available, nobody is going to reveal the know-how, how the auction is going on,” Gazprom Deputy Chairman of the Board Alexander Medvedev told RBC, commenting on the event.

Therefore, today Gazprom has an abundance of surplus gas supplies to be delivered not only under SWAP transactions with SOCAR this year (about 2 billion cubic metres per year) agreed by SOCAR president with the chef of Gazprom in the middle of September, but also can supply about 10 Georgian markets at competitive prices.

According to the official release by Gazprom, the parties discussed the issues of mutually beneficial bilateral cooperation in the energy sector. In particular, they negotiated resumption of natural gas supplies by Gazprom to Azerbaijan. It is noted that gas export will meet the growing needs of the republic in the energy carrier. Earlier in 2009, Gazprom and SOCAR signed the gas purchase-sale contract, under which supplies started in 2010. The addendum to the contract was signed in 2012. In 2013, the volume of natural gas supplies from Azerbaijan to Russia amounted to 1.4 billion cubic meters. In 2014, the volume of shipments fell to 0.21 billion cubic metres. No supplies were carried out in 2015.

Thus, Gazprom will be able to regain its lost positions in these markets after the launch of production at Shah Deniz field in the Azerbaijani sector of the Caspian Sea in late 2006. It should be recalled that in January 2007 BP suspended production at the field due to technical problems (repeated) at appraisal wells and then at production wells, which coincided with the twofold increase in price for Russian gas for Azerbaijan and Georgia, from $63 per 1,000 cubic meters to over $110. As a result, the supplies were suspended in the winter season. Azerbaijan was forced to supply not only the domestic market, but also the Georgian consumers with the required gas volumes. Under the contract with Georgia dated 2001, Azerbaijan, on a daily basis, exported (via BTC) from its storages 1 mln cubic meters of gas to this country within 10 days of each month and 3 mln cubic meters through the old gas pipeline. Meanwhile, Azerbaijan supplied electricity to Georgia on terms of its offset in summer. These supplies helped Georgia to overcome winder of 2007. Apart from this, according to the agreement which expires in 2016, Georgia got an opportunity to use a free carrying capacity of the Baku-Tbilisi-Erzurum gas pipeline. Besides, without operating and servicing the gas pipeline within its territory, Georgia shall buy a gas which price is twice lower than the market one. The volume will reach up to 7.5 bcm within 15 years. The country will also get a payment for transit of 5% of the transported volume – approx 3.9 bcm.

These are good conditions for Georgia and perfect basis for further development of cooperation in other areas – for instance in transport sphere. It is unlikely that Georgia is interested in its weakening, though the correction of prices seems the most probable due to the increasing export volumes and general situation with prices at global markets. 

Please see the material in more detail in the following issue of Caspian Energy Investor (spread in over 50 countries)

Natalya Aliyeva

President and Editor-in-Chief of Caspian Energy International Media Group

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