Azerbaijan: Russia to Blame for Delayed Gas Deliveries to Georgia?

Wanting to build its strategic reserves for what could prove a tense winter, Georgia sought to secure an additional 300 million cubic meters of gas from Azerbaijan's Shah Deniz field by the end of 2006, Georgian Energy Minister Nika Gelauri told a September 30 news conference in Tbilisi. [For details, see the Eurasia Insight archive]. Talks held October 10-11 in Baku appeared to yield positive results. But just days later, Azerbaijani officials revised their position, saying they could not guarantee the desired gas deliveries within Georgia's timeframe.

"Azerbaijan might need the gas for itself," the Trend news agency reported Azerbaijani Energy Minister Natik Aliyev as saying. "We cannot give a concrete promise yet because we do not know yet what Azerbaijan's energy balance will be next year." Azerbaijan itself imports between 4.0 billion and 4.5 billion cubic meters a year from Gazprom, the Russian state-controlled conglomerate that also supplies the bulk of Georgia's gas.

It is Georgia's energy dependency on Russia that has President Mikheil Saakashvili's administration worried in Tbilisi. A spy scandal, in which Georgia arrested Russian military officers, has placed Georgian-Russian relations in a deep freeze. In retaliation for the Georgian action, Russia has implemented punitive measures, including the closure of transport corridors and the suspension of postal service. [For background see the Eurasia Insight archive]. Even before the spy scandal, Russia imposed economic sanctions against Georgia, most notably a ban on wine imports. [For background see the Eurasia Insight archive]. Some experts believe that the Kremlin may in the coming months use its energy influence over Georgia as an additional instrument of retaliation against Tbilisi. Such concerns are rooted in the experience of January of this year, when pipelines running through Russian territory to Georgia inexplicably exploded, plunging the Caucasus country into an energy crisis. [For background see the Eurasia Insight archive].

The Shah Deniz gas field, with estimated reserves of 400 billion cubic meters (bcm), was to have provided the means for Azerbaijan to meet Georgia's demand. Gas from the field was originally expected to flow via the new Baku-Tbilisi-Erzurum pipeline by the end of October. However, that opening was postponed after Turkey announced that its part of the pipeline would not be operational until the end of 2006 at the earliest.

Georgia is supposed to receive 5 percent of the gas shipped to Turkey as a transit fee, plus the right to purchase an additional 5 percent of exports at a preferential price -- $55 per thousand cubic meters. The 300 mcm of gas Tbilisi wanted to purchase would be in addition to these supplies.

While Aliyev evaded giving a reason for the delay, some experts in Baku contend that the decision is political. "There are no technical problems which may cause a delay," asserted Ilham Shaban, an energy expert and editor of the Turan Energy Bulletin. "The pipeline running from Baku into Georgian territory is complete and ready for operation."

Shaban contends that Azerbaijan may have unofficially asked British Petroleum, which leads the gas development and pipeline consortium, to postpone production until the end of 2006 in order to avoid offending Russia on this issue. At the same time, he added, the British energy company appears to be cognizant of problems recently encountered by other foreign oil companies in Russian oil exploration, and may wish to do nothing that might rankle the Kremlin. "It means that, most likely, we're facing Russia's energy blackmail again," Shaban said.

The Azerbaijani government, however, denies that any hidden political motive exists for its decision. "Cooperation between Baku and Tbilisi was not affected by Russia's position on Georgia. We [the Azerbaijani government] are not experiencing any pressure from Russia," a source within the Azerbaijani Foreign Ministry told EurasiaNet. The differences between Russia and Georgia were discussed during an October 6 meeting in Moscow between the Azerbaijani and Russian Foreign Ministers, "and both sides expressed their understanding that the conflict should be solved as soon as possible," the source said.
Energy Minister Aliyev has confirmed that Azerbaijan is prepared to provide transit to Georgia for Iranian gas supplies, but Shaban states that the country's pipelines cannot transport more than 2 mcm of Iranian gas to Georgia per day, roughly 30 percent of Georgia's needs.

Ilgar Mammadov, a Baku-based political analyst, believes that other factors aside from Russia could have influenced the government's announcement. An increase in Gazprom gas prices could mean an increase in transit fees for gas to Azerbaijani foe Armenia, a situation which could raise tensions between Moscow and Yerevan to Baku's satisfaction, he suggested. "[D]ispleasure is growing within the government with the fact that Azerbaijan is making economic concessions to Georgia all the time," Mammadov added. After Azerbaijan made "serious concessions" to Georgia on transit tariffs for the Baku-Tbilisi-Ceyhan oil pipeline, the Georgian government initially asked for compensation for the financial losses the Georgian port of Batumi would incur once the Kars-Akhalkalaki-Tbilisi-Baku railway project with Azerbaijan and Turkey is complete, he noted.

Georgia later withdrew its demand, according to officials, but Mammadov contends that the request still rankles. Azerbaijan has granted credit to Georgia for the construction of a 29-kilometer railroad from Akhalkalaki, the main town in the predominantly ethnic Armenian region of Samtskhe-Javakheti, to Georgia's border with Turkey, and to repair a 160-kilometer railroad from Akhalkalaki to the border with Azerbaijan. "I think that this situation has begun to irritate [President] Ilham Aliyev's administration," Mammadov commented.

Turan energy expert Shaban contends that the problem may just be a question of over-sized expectations. "Saakashvili often stated that the launching of gas production from Shah Deniz will solve Georgia's all energy problems," Shaban said. "He made a mistake as we can see now: Georgia is still dependant on Russia's gas."