Gas and its geopolitical importance is a matter of disputes and prognosis in Europe and whole world.
European Union strives for energy independence by means of various methods and project. However, the EU member countries cannot reach agreement on this matter and the positions of western and eastern European countries do not coincide. This is especially expressed in their attitude toward Russia. The current events that are developing concerning gas pipeline Nabucco prove this.
At the end of March 2009, during the summit, EU approved the priority energy projects, including Nabucco project offered by head country Czech Republic. Head of European Commission Manuel Barozu emphasized that 5 billion from unused EU funds will be mainly spent on accomplishment of energy projects. 4 billion out of this sum will be spent on the development of energy infrastructure, while 1 billion is assigned for the development of internet and rural zones.
The energy infrastructure development considers broadening of electricity transmission lines and pipelines in EU countries. Nabucco project will be financed with 200 million. According to present calculations project should completed in 2015, while the first stream of natural gas will flow in the pipeline in 2013. Initially EU was planning to appropriate 250 million for Nabucco financing, but afterwards the sum decreased by 50 million. EU did not abandon Nabucco project definitely and it is involved in “Gas South Corridor” department that covers a whole number of energy projects that should be implemented in south to Europe. This fact makes it obvious that EU continues working on Nabucco project and it cares of this project. Of course, 200 million is a miserable quantity for the project, as Nabucco project realization requires 8 billion. However, summit members did not consider this. The fate of Nabucco was determined at the last minute due to considerable effort of eastern European countries. According to western media, EU included Nabucco in the list of high-priority projects only because of strong demand from Eastern European countries, and especially Poland. Former Soviet countries were demanding persistently to finance bypass pipeline that enables to avoid Russia dependence. Germany strongly objected this, as it is interested in “Southern Stream” and reckons that investments should be made in more short or middle term projects, instead that of long-term and expensive ones. France and Italy were against Nabucco project either. The main supplier of the gas and important geopolitical partner for them is Russia. However, Russia might have problems in gas supply itself.
Before the current financial crisis, international experts were assuming that gas deficit in Russia was anticipated in 2015. Russian experts were supposing that this would happen in 2010. However, the recently developed events induced experts to revise their prognosis. They declare that due to financial crisis the demand on gas will be reduced in the world in future three years. Another matter is – whether Russia will be able to derive the same amount of gas that it is obtaining now. Will GasProm able to launch Iamalski and Shtokmanovski deposits? Will Russia have sufficient time and resources for this? Anticipated gas deficit is one of the actual themes for discussion in Russia. As many experts note everything lead to this, as the old deposits are exhausting, but due attention is not paid to the development of new deposits.
As we already mentioned, part of the experts expect gas deficit by 2015, while another part reckons that this might happen in 2010. They prove that deficit of natural gas in Russia will be 40 billion cubic meters in 2010, that is 13% of the entire volume of consumed gas in 2007. However, some of the experts reckon that gas deficit is not expected either in 2010 or in 2015, as the demand on gas is considerably reduced in the world due to financial crisis. Besides, GasProm has 7-10 cubic meters of gas as a reserve that it can use at an appropriate time. If we take into account such estimation then the gas deficit is not actually expected at all. However, are these estimations realistic? Such number of opposite prognosis even more complicated the matters. The current deposits are expiring, while it is unknown whether it will be possible that new deposits become operative. The same experts assert that due regard is not given to their development. GasProm produced 650 billion cubic meters of natural gas in 2007. In 2030, Russia will be able to obtain from the same deposits only 100-150 billion cubic meters of gas, while Iamolsk and Shtokmanovsk new deposits will produce 115-140 and 70 billion c/m of gas. It comes out that in 2030 Russia might obtain 360 billion c/m of gas a year from both new and old deposits.
In addition, by the time when Iamalsk and Shtokmanovsk deposits start working with their full load, GasProm will enter new markets such as Japan, China and America. In 2015-2020 years, demand growth is anticipated in these regions in spite of decreasing demand in whole world, as their current suppliers are not able to provide enough volume of gas and at present 150-200 cubic meters of gas is flowing to Asia.
In 2030, the aggregate volume of natural gas demand on world markets – in Russia, Europe and Asia will amount 900-1100 billion c/m a year. If considering technical conditions, Gasprom and other independent companies will be able to produce only 800-1000 billion c/m of gas. Besides, Shtokmanovsk and Iamalsk deposits are quite scaled and require colossal investments. Huge funds are necessary to make these deposits operative.
Considering current financial crisis, even for such giant as GasProm the financing of the mentioned deposits will be a complicated task. Russian experts suppose that in order to outcome economical crisis it will be essential to increase gas prices in the country. However, in this case, it would be necessary to establish differential tariffs for the population and entrepreneurs. Permanent growth of prices might result nonpayment crisis in Russia that was observed in nineties. There is another factor – what is a high-priority matter for GasProm – profit and business development or political accounts? It is common knowledge that Russia often uses gas for its political manipulations. Everybody remembers winter three years ago on January 26 2006, when Russia stopped gas supply to Georgia for the reason of explosion in trunk gas pipeline. For the country that has neither own gas depository, nor alternate gas pipeline, or coal operating heating systems, this was a clear proof for showing how much it depends on Russian natural gas and correspondingly its political favor. In autumn of the same year, Russia wanted to establish European gas tariff for Georgia and high-priority of the country’s independence became obvious. The one of the important steps that should be made for energy independence achievement is the construction of Gas depository in Georgia. Importance of gas depository was proved by the time when during Russia-Ukraine gas war, the last managed to overcome Russian aggression at the expense of gas depositories. As we already mentioned, unlike Ukraine Georgia hasn’t got such gas depositories. Active talks about this matter have been started in recent years. Millenium Challenge Program’s infrastructure rehabilitation project includes technical economical examination of gas depository construction. Government should make decision about the construction of strategic meaning depository in May. In case of project approval, the construction should be finished in 2013. Millennium Challenge Foundation already assigned $10 million for the project works and not it awaits answer from the government that should finance the construction. According to the assessment made by experts, the construction of gas depository will cost GEL 200 million and supposedly, it will be located in Kakheti – in the deposits of Ninotsminda or in Rustavi.
How is Georgia supplied with gas today? How far is it dependent or independent of Russian gas? It is possible to supply gas today in Georgia by three main pipelines. These are: North-South gas main that provides Georgia with Russian natural gas. Armenia is receiving gas from the gas main either. Georgian Oil and Gas Corporation is gaining 10 percent of transported natural gas as a mean of payment for the transition. The second is Southern-Caucasian gas main (Shahdeniz). According to the agreement made at the initial stage of the project that is still operative, state is receiving 5 percent of transited gas free and in addition, Georgia can buy 300 million c/m of natural gas at a discount rate by $63. In 2010 and 2011, that amount of natural gas, which can be bought at a discount rate, will be increased up to 500 million cubic meters. The third gas main is so-called Karadaghi-Saguramo pipeline that was connecting Azerbaijan and Georgia natural gas systems from the Soviet Union times. At present, this pipeline is transiting natural gas of Azerbaijani state oil company Socar. According to Azerbaijani sources, 515 million c/m of natural gas has been exported in Georgia, in the period from April 2008 till October 2009. At end of 2008, company already owned the major part of gas distribution chain – more precisely 29 gas distributing regional companies. As regards Georgian gas distribution market, one of the big players is KazTransGas Tbilisi that owns Tbilisi gas distribution chain. However, KasTransGas Tbilisi is facing serious problems. Semek assigned special supervisor for the company. The reason to this decision was huge amount of indebtedness. Company has GEL 80 million debt and one of its creditors is Georgian Corporation of Oil and Gas. The amount of the company’s debt to the Corporation is GEL 68 million. In order to ensure permanent gas supply of the capital, Semek assigned special supervisor for the company. Semek declares that in case of clearing own liabilities the special supervisor will stop activity immediately. Semek categorically excludes the possible bankruptcy of KasTransGas Tbilisi and declares that due to qualified management the company will avoid such dangers. Bankruptcy dangers are not discussed in the company either. However, it is not clear whether the company will be able to pay the debts or not. “Bankruptcy is not endangering the company and accordingly the gas supply of Tbilisi population won’t be delayed”. – declare the KasTransGas-Tbilisi representatives. The company’s general director Sanjar Makataev agrees to cooperate with Georgian management. “This decision is not connected with the politics and there are no talks about property confiscation”. – stated Mr. Makataev
However, Georgian experts are loudly talking about the fact that KasTransGas-Tbilisi will try to solve financial problems at the expense of population and increase natural gas price. Experts are blaming Energy Regulation Committee either. They reckon that developing events in KasTransGas are the result of weak work of regulating committee. Experts explain that the indebtedness should be paid either by the government or by the company itself. In case of nonpayment, Tbilisi population will face actual problem of gas supply. KasTransGas has complicated relations with Tbilisi population already. In the recent months, company urges to replace damaged or old counters at their own expenses. The facts of illegal gas supply cut offs are frequently observed. However, nobody defends populations’ interests. Georgian government decided to sell TbilGas in summer 2005. The reason of such decision was the company’s indebtedness either. Indebtedness of TbilGas amounted $7.4 million to Gasprom and 120 million GEL to capital’s budget. After abandoned negotiations with GasProm, government started to look for such investor that would import cheap gas itself or would conclude agreement with GasProm about supply of sufficient gas to Georgia. KasTransGas appeared to be the company that would meet these requirements. Government sold Tbilisi distribution to it. KasTransGas is a daughter company of Kazakh state oil and gas company KazMunGaiz and it transports gas in Kazakh. Georgian government was hoping that kasMunGaiz would be able to persuade GasProm to allow gas transmission in its pipeline for Tbilisi and consequently KazTransgas would supply Georgia with cheap Kazakh gas. Experts were noting that this expectation was initially exaggerated. GasProm wouldn’t allow third party gas flow in its pipelines, while KazMunGaiz wouldn’t damage relationships with GasProm for Tbilisi. This forecast came true and Kazakh Company couldn’t import cheap gas to Tbilisi. The company is buying the necessary gas for Tbilisi population from Oil and Gas Corporation. Russian ITERA is operating on Georgian market also. It owns nine regional gas distributions net and it provides major consumers with gas.
Cement factories, bread producing factories and gas distribution stations, together with other major and middle-sized consumers are served by International Energy Corporation of Georgia. This is a private company and it operates in the market according to ordinary commercial rules.
It is note-worthy that today most part of distribution companies is purchasing gas from Georgian Oil and Gas Corporation. The price of so-called “Social natural gas” is $167. This gas is obtained from 10 percents of Russian transit, Shadeniz free and cheap natural gas and part of natural gas bought by the five-year agreement signed with Socar. Oil and Gas Corporation declares that the volume of gas made up 50 million c/m. Georgian consumed 1.5 billion c/m of gas last year that is by 200 million c/m less than the volume of consumed gas in 2007.
It is interesting which company’s natural gas are the distribution companies consuming? The company ITERA Georgia declares that it purchases part of the gas from Socar and part from ITERA or it transports the gas from North (Russia). The company has signed five-year agreements, but the prices are revised every year and so far, it is difficult to say definitely, what amount of payment they will pay in the nearest future. Georgian International Energy Corporation is purchasing natural gas from Socar. Last year corporation was buying the gas from GasProm, but as the Socar’s gas price is $5 less than that of GasProm the choice was set on Socar. (Socar gas price – $275 and GasProm – $280).
As we see, Georgia is less depended on Russian GasProm, but now it depends on Azerbaijani state company. This should be balanced by Georgia’s involvement in international projects. In order to increase energy independence quality, it is very important to broaden the country’s energy corridor. The matter is being discussed in Georgia-USA memorandum of strategic cooperation. At this stage, the country managed to diversify the gas supply and created competition in the market. However, this is not reflected on the tariffs of the gas. Instead of price reduction, price increase endangers the population. The question arises logically – is Semek capable to cope with the problems? And what are its main functions – replacing top-managers or defending interests of the population?