Rovshan Ismayilov

EurasiaNet, NY
Oct 19 2006

Azerbaijan will not be able to supply Georgia this year with the
additional gas supplies that the Georgian government is seeking in
order to forestall the possibility of an energy crisis. Some experts
in Baku believe that Russia's ongoing diplomatic row with Georgia is
influencing Azerbaijani policy decisions.

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."

Editor's Note: Rovshan Ismayilov is a freelance journalist based
in Baku.