Sunday, December 21, 2008

Azeris to run Georgia gas network

First published in November 22, 2008 Armenian Reporter

Georgia cedes its natural gas network to Azerbaijan
by Emil Sanamyan

The Iran-Armenia gas pipeline at Saralanj. Photolure

Washington, - Georgia agreed to hand over the ownership of its natural gas network, which includes the transit gas pipeline from Russia to Armenia, to the Azerbaijani government, news agencies reported.

Under the November 14 deal, announced by Georgian leader Mikheil Saakashvili the next day, in return Azerbaijan would satisfy the bulk of Georgia's natural gas needs in 2009-13 at below-market prices.

The deal was finalized during an energy summit in Baku that brought together a number of central and eastern European heads and senior officials of states interested in Caspian energy.

Also at the summit, Kazakhstan agreed to expand its oil shipments via Azerbaijan, Georgia, and Turkey through the Baku-Tbilisi-Ceyhan pipeline built with U.S. support.

"Property for debt"

Georgia's deal with Azerbaijan is similar to Armenia's deal with Russia, exchanging formal ownership of the gas network - that could potentially serve as political leverage - for a temporary reprieve in prices.

Until this year, like Armenia, Georgia bought most of its natural gas from Russia. Moscow reportedly came close to buying the Georgian gas network, but the offer was declined by Tbilisi on the U.S. government's insistence, which was concerned with integrity of non-Russian gas supplies.

Although the Georgian-Russian border is closed and official relations are suspended, Russia continues to supply Georgia, and through it Armenia, with natural gas. The biggest gas consumers in Georgia - the Tbilisi electricity network and a chemical plant - are owned by Russian companies.

While Russian-Georgian talks on South Ossetia and Abkhazia resume in Geneva this week, no normalization in relations is anticipated any time soon.

Speaking at the Council on Foreign Relations in Washington on November 15, President Dmitry Medvedev said that Russia was "ready to build relations with Georgia."

"But not with the current [Saakashvili] regime," Mr. Medvedev said. "That is a red line, which we cannot cross."

Armenia impact

Azerbaijan has now promised to cover more than 60 percent of Georgia's overall gas needs - estimated at 1.8 billion cubic meters of gas a year - at below-market prices. The rest of the supplies to Georgia would still need to come at market prices from Azerbaijan, Russia, or Iran.

Armenia imported more than 2 billion cubic meters of gas from Russia last year. In addition to the now Azerbaijani-owned Georgian transit pipeline, Armenia can now potentially import natural gas from Iran - an important safeguard that Armenia rushed to complete in recent years - should new problems arise in supplies via Georgia. The Iran option also becomes more attractive as Russia begins to raise prices for its supplies starting next year.

Consequences for Armenia of the Georgia deal may become apparent soon. Azerbaijan and Turkey had previously used a promise of lower gas prices to Georgia as leverage against Armenia in the form of Georgian support for the Kars-Akhalkalaki rail bypass and other projects.

The Russian-Georgian war already disrupted air and other traffic between Russia and Armenia. Media reports suggested that Georgia was trying to prevent Russian military cargo, including those resupplying its military base in Gyumri, from reaching Armenia.

Considering the continued importance of Georgia transit to Armenia, it is not surprising that both President Serge Sargsian and Defense Minister Seyran Ohanian have visited Georgia since the August war, and Prime Minister Tigran Sarkisian is expected to go soon.

See my Jan. 2007 analysis of the same subject here:

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