Georgia Looks Longingly for New Gas Suppliers

Georgia is not exactly known for its bold attempts at energy diversification. Ever since the 1990s its energy strategy – like its broader political strategy – has been fairly straightforward: rely on Azerbaijan as much as possible, to keep gas imports from Russia to a minimum, and use its strategic position between Azerbaijan and Turkey as geopolitical and commercial leverage.

But there are signs that the new-ish government of Prime Minister Bidzina Ivanishvili may be starting to think outside the box on energy, and specifically gas. Since coming to power in October last year Ivanishvili, a tycoon who made his billions in Russia, has been accused by critics of diverting Georgia from its pro-Western path and ‘appeasing’ Moscow. Most of this has been overblown, but some of the options for reassessing Georgia’s gas strategy will undoubtedly give further ammunition to Ivanishvili’s critics – as well as raising questions about the government’s grasp of energy matters.

In early May Energy Minister Kakha Kaladze suggested the resumption of gas imports from Russia, ending a six-year hiatus imposed due to rising political tensions. His deputy Marika Valishvili subsequently said that the “main component of Georgia's energy security is the diversification of energy sources and supply routes. . . We are ready to consider all alternatives for Georgia's gas supply security”. He also said that Georgia should not depend on a single supplier – Azerbaijan – for all its gas.

President Saakashvili, who remains implacably opposed to cooperating with Moscow after the 2008 war, warned that resuming gas supplies from Russia meant the “"revision of Georgia's independent course” and cautioned against moving away from Azerbaijan. He did, however, concede that Georgia should consider diversifying its gas imports from other non-Russian sources, namely Kazakhstan and Turkmenistan.

So the government and president are agreed on the need for diversification, albeit not on its source. But the question is why Georgia feels the need to diversify its gas supplies away from Azerbaijan in the first place. Baku has been a reliable supplier ever since the Baku-Tbilisi-Erzurum pipeline came onstream in 2006. Gas and oil exports have been the cement in the hugely important Baku-Tbilisi-Ankara axis, one of the most important elements of Georgia’s geopolitical strategy.

Azerbaijan’s gas production and exports are set to rise significantly over the next few years, so Georgia doesn’t exactly need to look for new suppliers. At present, its neighbour supplies just under 2bcm to Georgia, which provides almost all of its gas requirements (the remainder is actually supplied by Russia, through take-off of the Russian supply to Armenia). As Saakashvili noted, Azerbaijan’s gas is also cheap: although just over $200/tcm, higher than it was a few years ago, Georgia does benefit from transit fees from Azerbaijani gas and oil pipelines. 

Diversity is, of course, the energy watchword of the moment, so it may just be that Georgia’s government is trying to think outside the box. Kaladze mused about diversified supply leading to greater competition and better prices. But in their choice of alternatives, both Saakashvili and Kaladze (a man not really known for his expertise in the energy sector) look aspirational, if not naïve. Turkmenistan’s gas will only come west once the fiendishly complex business of building a Trans-Caspian Pipeline is successful. Given the political and commercial challenges involved, this remains unlikely. Wishing for Turkmen gas is all very well but Georgia lacks the leverage to do anything about it.

Meanwhile Kazakh is not much of a gas exporter at all. The small amount of gas it does export goes to Russia for processing and domestic use, or to China, which will take up any spare supplies through the Central Asia-China pipeline. Tbilisi has no chance of competing with Beijing here, and in any case any Kazakh supplies would have to go through the Russian pipeline network first. Kaladze acknowledged that, admitting that “Kazakh gas leads us back to the Russian Gazprom”.

These ham-fisted suggestions led to a bit of a retreat from the Georgian authorities in a bid not to alienate Baku. Saakashvili insisted that “today, like never before, we need to show special solidarity towards Azerbaijan”; in a rare bit of alignment between the two, Ivanishvili also stressed his gratitude to Azerbaijan for its support in the energy sector.

So perhaps this was just Kaladze thinking out loud. But Ivanishvili’s statements also suggest that some kind of reorientation in Georgia’s gas strategy is being contemplated in Tbilisi. With Saakashvili and Ivanishvili both opposed to resuming Russian gas imports, it seems that Kaladze won’t get his wish, and other options are even less likely. Georgia may be keen to find new energy partners - but it won’t be ending its embrace of Azerbaijan anytime soon. It should appreciate what it’s got.

Alex Jackson is an analyst of political, energy and security issues in the Caspian region. He is based in London and can be contacted at ajackson320@gmail.com.

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