EurasiaNet Business & Economics - Georgia Courts Foreign Investors for Domestic Energy Sector

BUSINESS & ECONOMICS

GEORGIA COURTS FOREIGN INVESTORS FOR DOMESTIC ENERGY SECTOR

Daan van der Schriek 3/11/03

Georgia, already working to establish itself as a transit route for Caspian Basin energy exports, is also looking to develop its own oil and gas potential. Tbilisi is preparing to host a major energy development conference March 13-14. Georgian officials hope the meeting will help the country’s domestic energy industry overcome skepticism on the part of major oil conglomerates.

Giorgi Chanturia, president of the Georgian International Oil Corporation (GIOC), says the second annual Georgian International Oil, Gas, Energy and Infrastructure Conference (GIOGIE) aims to establish links between Georgian and foreign companies and to showcase Georgia as a potentially lucrative opportunity for energy investors.

Georgia is mainly known as a transit country for Caspian oil and gas. The Baku-Tbilisi-Ceyhan oil pipeline and South Caucasus Pipeline, which will transport natural gas from Baku through Georgia to Erzurum, will require investments totaling an estimated $3.9 billion. [For additional information see the EurasiaNet archives]. Only a small percentage of this investment will benefit Georgia. Yet, the projects constitute the largest investment programs in the country.

Georgia’s oil and gas industry holds comparatively little interest for investors. Georgia has potential resources of some 2 billion tons of oil, said Nika Chitadze of the State Agency for the Regulation of Oil and Gas. Proven reserves, however, are a modest 5 million tons. In 2002, Georgian oil production amounted to 73,900 tons � 25.2 percent less than the previous year. Besides oil, there may be about 125 billion cubic meters of gas in Georgia, with proven reserves of 8.5 billion cubic meters.

According to a source within one of the oil companies active in Georgia, foreign companies already engaged in energy development in Georgia tend to be smaller players on the global market. These firms are searching for partners to share in the financial risks associated with energy exploration and development. But, the source adds, with huge oil and gas reserves in nearby Azerbaijan and Kazakhstan, Georgian officials, along with these smaller Western companies, are finding it difficult to interest major energy companies in investing.

The foreign firms active in Georgia include: US Frontera Resources Corp.; Canadian CanArgo; British JKX; Swiss National Petroleum; and German GWDF. The Swiss and German companies have formed joint ventures with the Georgian State Oil Company, Saknavtobi, plus the US-based Anadarko Petroleum Corp.

These companies are mainly engaged in exploration. "It’s pioneering work here," the source said. "The smaller companies are getting in and are busy exploring blocks. Then they wait and try to get financial bigger companies to take over their block and work." At the moment, however, "no-one is making money here," the source added.

JKX has reportedly helped get Anadarko involved exploring Georgia’s off-shore energy potential in the Black Sea. But even Anadarko is in need of a partner to share the financial burden. Oil reserves in Georgia’s sector of the Black Sea have been put in a fairly wide range � from 70 million to 1.3 billion barrels.

According to Chitadze, the outlook for Georgia’s Black Sea potential is "positive." But in the event that high hopes are confirmed by proven reserves, drilling in the Black Sea would require considerable investment. "A large, modern rig will have to be brought into the Black Sea via the Bosporus. And the bridges there will make it necessary to saw the derrick off first � adding to the costs," the source explained. Anadarko declined to comment on its Black Sea project although a spokesperson confirmed that they were "doing something" concerning Black Sea exploration.

Political risk also clouds the potential Black Sea reserves. The areas off the coast of the separatist-minded region of Abkhazia are currently unavailable for exploration. [For additional information see the Eurasia Insight archive]. And any company that might drill near the autonomous republic of Ajaria would not know whether to sign contracts with Ajaria, Georgia, or to both. "Negotiations are going on," said Chitadze, "but the outcome is as yet unknown."

Widespread crime and corruption, along with a constant potential for instability, also hurts Georgia’s investment prospects, especially in comparison with Azerbaijan or Kazakhstan. [For additional information see the Eurasia Insight archive]. While the investment environments in Azerbaijan and Kazakhstan also are plagued by corruption, both countries have already attracted major producers and promise quicker returns on capital investment.

Editor�s Note: Daan van der Schriek is a freelance journalist based in Baku.

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