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Europe's Shift from Russian Gas to Pricey LNG

Europe's Shift from Russian Gas to Pricey LNG

Europe's switch from Russian pipeline…

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Georgia’s Gas Transit Agreement With Gazprom Sparks Unrest

Georgia gas pipeline

A new transit agreement reached earlier this month between the Georgian government and Russia's Gazprom on how Georgia will be compensated for the transit of Russian natural gas across its territory to Armenia has incurred widespread criticism.

Even though not all of the details have been made public, the divided opposition United National Movement (ENM), civil society organizations, and even Georgia's president have all denounced it as undermining the country's energy security and political interests.

Energy Minister Kakha Kaladze has rejected such criticism as "disinformation" and "hysterics" on the part of "marginal groups" seeking to "score populist points." After he ignored a request from the ENM last week to brief parliament on the precise terms of the agreement, the party is now demanding that a debate on the issue be scheduled for February 8.

For the past several years, under successive annual agreements, Georgia received 10 percent of the approximately 2 billion cubic meters of gas Gazprom supplied annually to Armenia instead of cash payment. That tariff, according to Vartan Harutiunian, CEO of Armenia's national gas company, owned by Gazprom, is the highest in the world.

The 200 million cubic meters Georgia received in lieu of transit tariffs accounted for a little under 10 percent of Georgia's total gas consumption in 2015. Georgia imports almost 90 percent of its gas from Azerbaijan.

Kaladze disclosed in January 2016 that Gazprom had sought for the previous two years to monetize the transit fee, but ultimately agreed to maintain payment in kind. This year, however, Gazprom apparently insisted on switching to monetization. Consequently, Georgia agreed to a two-year contract. During the first year, Georgia will be paid partly in kind and partly in cash (the proportion is not known), but as of 2018, Georgia will be paid the cash value of 10 percent of Armenia's gas imports. Related: Robots Over Roughnecks: Next Drilling Boom Might Not Add Many Jobs

At the same time, Georgia will be entitled to buy Russian gas to compensate for any shortfall that arises, but the price charged will be $185 per 1,000 cubic meters, compared to the normal prices of $215. Economy Minister Giorgi Gakharia said it may not even be necessary to purchase any Russian gas unless Azerbaijan is unable to provide additional quantities if asked to do so.

Critics of the new deal say it is economically disadvantageous, runs contrary to national interests, and poses a threat to the country's energy security. They note that the price Gazprom charges Armenia for gas has been reduced several times (it is currently $150 per 1,000 cubic meters) and is not enough to purchase the quantity of gas that Georgia received in previous years in lieu of transit fees. Kaladze, however, claims that the value of the cash payments is "more or less the same" as that of the gas received in previous years.

Kaladze has repeatedly rejected the objections voiced by the ENM as unfounded and politically motivated. The ENM had similarly criticized him for not taking a tough enough stance during the negotiations that culminated in last year's agreement.

Kaladze said the first two rounds of talks, on December 13 and 23, were difficult, as the two sides' positions were "so far apart there was nothing to negotiate about." He did not say whether Gazprom threatened, as it had done in early 2016, to reroute future gas exports to Armenia via Iran, but this may have been the case, judging by Georgian parliamentarian Gia Volsky's comment that not accepting Gazprom's offer would have damaged Georgia's relations with Armenia and called into question Georgia's reliability as a transit country. Related: Keystone XL Still Faces Obstacles Even With Trump’s Approval

Then, during the third round on January 11, Gazprom came up with what apparently amounted to a take-it-or-leave-it ultimatum that according to Kaladze was an improvement on its earlier offers, and to which he assented. He says doing so was the "rational and correct" course of action and that the new agreement preserves Georgia's "important transit function" while "not increasing by a single iota" its energy dependency on Russia.

Kaladze has refused to divulge the precise terms of the new agreement on the grounds that they constitute a commercial secret, but economist Lado Papava questions this, pointing out that it is not an interstate agreement but one between a commercial entity and a national government.


Georgian officials tacitly admit nonetheless that the terms of the new agreement are less than ideal. Kaladze has stressed repeatedly that they were the best Georgia could have achieved, while Prime Minister Giorgi Kvirikashvili said the agreement "is nothing to celebrate." But as parliamentarian Zviad Dzidziguri has pointed out, no opponent of the new agreement has stated explicitly what Georgia could and should have done to secure better terms.

By Liz Fuller via Rferl.org

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