Saakashvili Strikes Gas In Turkey

SAAKASHVILI STRIKES GAS IN TURKEY

Kommersant, Russia
Dec 21 2006

Georgia will get most of its natural gas in 2007 from the Shah
Deniz deposit in Azerbaijan, which is being developed by BP. This
was announced by Georgian President Mikheil Saakashvili after his
negotiations with Turkish President Ahmet Necdet Sezer in Ankara
during his three-day official visit. Turkey is transferring gas it has
contracted for to Georgia, Greece and Azerbaijan, and the price of that
gas will be lower than the proposals made by Gazprom. Armenia comes out
the loser in the plan, which will be confirmed on December 21 and 22.

The idea of splitting up Turkish gas arose in October, after Gazprom
announced that Georgia and Azerbaijan would be paying $230 per 1000
cu. m. of gas in 2007 and that the quota on supplies to Azerbaijan
would be lowered from 4.5 billion c. m. to 1.5 billion cu. m. In
response to that, BP stepped up development at the Shah Deniz deposit,
gas from which is to flow to the Transcaucasian countries, Turkey and
Europe next year. Saakashvili and Azeri President Ilham Aliyev reached
an agreement in principle on deliveries of Azeri gas to Georgia at the
CIS summit in Minsk. Turkey, Georgia and Azerbaijan began negotiations
on the details of the gas supplies in the middle of this month.

It has been learned so far from sources at the negotiations that 800
million cu. m. of gas from the Turkish quota will go to Georgia,
which will receive another 50 million cu. m. in payment for gas
transit on the Baku-Tbilisi-Erzerum gas pipeline, which originates
at Shah Deniz. The country will receive 250 million cu. m. at the
discounted price of $60 per 1000 cu. m. and will receive about 100
million cu. m. from Gazprom, even without a contract, as payment for
the transit of Russian gas to Armenia. Armenia has been guaranteed
1.2 billion cu. m. of natural gas from Russia. Of that volume, 400
million cu. m. will be supplied to Georgia at a price lower than $60
per 1000 cu. m. and 800 million cu. m. at a price to be agreed on by
December 22.

A Kommersant source in the Georgian Ministry of Energy said that
"the price for Shah Deniz gas will be lower than Gapzrom’s price, of
course, but it will still probably be over $100." Georgia consumes
1.5-1.7 billion cu. m. of natural gas a year. The remaining 300
million cu. m. will have to be obtained from Iran or Russia, but the
price will not have a great effect on the overall average price.

Turkey has stated that the gas from Shah Deniz is not needed by
it for its 2007 energy needs. Turkey receives a significant part
of its gas from Gazprom via the Blue Flow pipeline. Its contract
stipulates hefty fines for Gazprom is it curtails supplies. The
Turkish president stated almost openly that Turkey was giving up
its gas quota in exchange for the beginning of the construction of
a Kars-Akhalkalaki-Baku rail line bypassing Armenia. Turkey is also
insisting on the return of the Meskhetian Turks to southern Georgia,
which is strongly opposed by the Armenian community in that area.

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