NABUCCO NO LONGER A ‘PIPE DREAM’ FOLLOWING LANDMARK ACCORD

Georgian Business Week
July 20 2009

As governments inked their names to the Trans-Caucasus Nabucco
pipeline project last week in Turkey, Georgia’s economic sector is
looking forward to the prospect of cheaper energy which could spur
stronger investment in the country.

"We are witnessing the launch of a very significant project," Georgian
Economy Minister Lasha Zhvania told Georgian reporters. "It will give
Georgia gas at an affordable price, allowing the government to lower
consumer gas prices. So this will bring a relief to people and on
the other hand will be a good reason for foreign investors to come
and start businesses here."

The prime ministers of Austria, Bulgaria, Hungary, Romania and Turkey
signed the Intergovernmental Agreement over the Nabucco energy pipeline
on July 13. The much-anticipated project would provide Europe with
an alternative route for energy resources from the Caspian Sea region.

Turkey’s capital city played host to the event, which brought together
representatives from 30 countries, including Georgian President
Mikheil Saakashvili.

Turkish Prime Minister Recep Tayyip Erdogan said he expects the
project will be a "success story," despite some critics dismissing
the 7.9b EUR project as "a pipe dream."

While highly important economically for the transit countries,
the 3,300km project bears mostly a political significance for the
destination point – Europe’s consumer market. That’s because the
pipeline will allow transportation of Caspian natural gas circumventing
Russia, which used gas transit as a political weapon in the past.

The pipeline would run from the Caspian Sea through Turkey to Europe’s
energy market crossing Georgia, Turkey, Bulgaria, Hungary, Romania
and Austria.

The project is supported by the European Union, seeking an ease from
the Russian energy dependence especially following this winter’s gas
war between Russia and Ukraine.

The United States has also provided strong backing based on similar
political motivations as Brussels.

"This Agreement is a significant milestone in achieving our shared
vision of opening a new energy corridor that will bring Caspian
gas to Europe," U.S. State Department spokesman Ian Kelly told
reporters. Energy security is gained through diversity – diversity of
energy sources, delivery routes and consumer markets, and the Nabucco
pipeline is an example of that diversity."

But boosters of the pipeline are mindful that Nabucco won’t be a
cure-all for Europe, which gets almost 40 percent of its natural gas
from the Russian Federation.

Nabucco promises to reduce the reliance on the Russian energy by
approximately 10 percent, which would be considered substantial
progress in Europe’s efforts to diversify its energy supply.

Laying on this important alternative energy route, Georgia expects
both political and economic benefits from participating in the
Nabucco project.

Georgia’s leaders see their country’s unique position as an energy
transit point as a way to secure political leverage when confronting
its own challenges involving breakaway regions, disputes with Russia
and its aspirations to join NATO and the EU.

The economic considerations are similarly important.

Construction of the pipeline is scheduled to start next year with
the first gas deliveries arriving in 2014. Initially the pipeline
will pump 14 billion cubic meters (bcm) of natural gas to Europe
annually. By 2020, it could carry 31 bcm of gas annually. Out of this
volume, Georgia will receive 1.6 bcm of gas per annum as a transit
country. This is 10 percent of the transported gas – 5 percent as a
transport fee and 5 percent at a discounted rate.

This amount of gas, according to Georgian Energy Minister Aleksandre
Khetaguri, can fully meet the current gas needs of the country.

The ministry’s figures show that Georgia needs a total of 1.8 bcm
of gas per year, with the largest share of 800 million cubic meters
consumed by the commercial sector.

"By 2014 we’ll possibly have increased consumption index but anyway the
gas portion [from Nabucco] will supply major part of the consumers,"
Khetaguri told Georgian journalists on July 14.

Azerbaijan is currently the chief supplier of gas for Georgia,
which receives Azeri gas via two ways. Three Azeri companies, SOCAR,
AzeriGaz, and AzeriGaz-Niegli, export Azeri gas to Georgia in addition
to the consortium that owns the Baku-Tbilisi-Erzerum and Shah-Deniz
gas pipeline.

Additionally, 10 percent of the natural gas transported to Armenia
by the Russian gas giant, Gazprom, remains in Georgia in the form of
a transit fee.

SOCAR supplies gas to the population and to power stations. The gas
distribution companies charge people 167 USD per 1,000 cubic meter
gas and 143 USD to power stations.

Nabucco was put in the international spotlight around seven years
ago. Russia’s potential resentment over the alternative gas pipeline
and low-key economic advantages largely were reasons behind the
slow progress.

The insufficient gas supply was also seen as a concern.

However, since the Russia-Ukraine gas row played a catalyst in giving
a green light to the hindered project, it has become clear that for
the global decision-makers far-reaching political considerations
have triumphed.

While Moscow reacted angrily to what it sees as a pompous signing
ceremony, Georgian government officials say Russia only has itself
to blame.

"Endless gas manipulations by Russia has forced Europe to think
twice and start this diversification venture, which has once again
underlined Georgia’s role as a strategically important transit
country," Georgian Minister for Reintegration Issues Temur Iakobashvil
said in the televised comments.