07TBILISI3146, GEORGIA: NOT QUITE THERE ON ENERGY INDEPENDENCE

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Reference ID Created Released Classification Origin
07TBILISI3146 2007-12-21 10:01 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

VZCZCXRO7675
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #3146/01 3551001
ZNY CCCCC ZZH
R 211001Z DEC 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC 8494
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEHNSC/NSC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 TBILISI 003146 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/CARC. EUR DAS BRYZA, EEB/ESC/IEC AND EUR/RPM 
DOE FOR LANA EKIMOFF 
NSC FOR LAUREN CATIPON 
 
E.O. 12958: DECL: 12/21/2017 
TAGS: EPET ENRG PREL GG AJ RU TU
SUBJECT: GEORGIA: NOT QUITE THERE ON ENERGY INDEPENDENCE 
FROM RUSSIA BUT MORE COMFORTABLE THAN 2006 
 
REF: A. TBILISI 2657 
 
     B. BAKU 1456 
     C. 06 TBILISI 2949 
 
Classified By: Ambassador John F. Tefft, reason 1.4(b) and (d). 
 
1. (C) Summary:  Georgia should be able to meet at least 3.5 
million of its total 7 million cubic meter per day natural 
gas needs from Azerbaijan, in the early part of 2008.  The 
rest will have to be purchased from Gazprom.  The 2008 
Gazprom price is expected to be higher than 2006, but not to 
double as in years past.  Azeri gas will be more expensive as 
well, but its availability acts as a deterrent to intentional 
stoppage of supply from Russia.  Georgia's capacity to 
receive gas from Azerbaijan now nearly equals its daily 
needs, but actual supply will depend on negotiations with the 
GOA, which are ongoing.  The government is not talking about 
buying Iranian gas, except in a dire emergency.  End Summary. 
 
 
2. (C) Georgia finds itself in a more comfortable position 
with regard to its energy needs in the winter of 2007-2008 
than it did in 2006-2007, but is not entirely free of 
worries.  According to GOG estimates, Georgia will need 8.8 
million cubic meters (cm) of gas per day in January to serve 
all residential, commercial and industrial customers and 
generate electricity to supplement what is available from 
hydropower sources.  The similar figures for February and 
March are 7.5 million and 7.2 million, respectively. 
However, Georgia used less than 7 million cm in January 2007 
and has ample supplies of hydropower that mean it will 
probably use a similar amount in January 2008.  April 
consumption will be far less as the weather warms and thermal 
electricity units at Gardabani begin to go off-line. 
 
3. (C) Unlike last year, Georgia has a reliable supply of gas 
from the SCP (Shah Deniz) pipeline, 200 million cm per year 
free in return for transit, plus an additional 50 million cm 
at $55 per thousand cubic meters (tcm).  This "transit gas" 
has been running about 1 million cm per day in December.  BP 
informs us that the offtake from SCP is being upgraded to 
handle as much as 4-5 million cm per day, and could even 
handle 8 million on an emergency basis for a short time. 
About 1 million cm is available to Georgia in return for 
transit of gas from Russia to Armenia.  Azerbaijan is 
supplying Georgia with 1.5 million cm of gas per day over a 
second pipeline, separate from SCP, until January 15.  Last 
year, this pipeline had an estimated capacity of 3 million cm 
per day, and with ongoing upgrades, it may have as much as 4 
million cm this year. 
 
4. (C) As of late December, the government continues 
negotiations with Azerbaijan for 2008 natural gas from 
non-SCP Azeri sources.  These negotiations have been hampered 
by Azeri concerns about the availability of re-injected gas 
used to support oil production from the ACG field (ref B). 
However, according to BP, the Azeris seem more relaxed about 
their winter gas situation than they were earlier in the 
year, which is beneficial to Georgia.  Another supply 
possibility, which apparently is as yet unexplored, arises 
from the possibility that Turkey may not be able to take its 
full commitment of gas from SCP.  In that event, Azerigas has 
first call, and could sell Turkey's unused share to Georgia. 
The 2007 price for Azeri gas imported to Georgia was $120 per 
tcm.  The GOG has not been forthcoming about what it thinks 
the 2008 price will be, but it is likely to be higher, in the 
range of $150-190, based on conversations with BP and with 
KazTransGaz, which supplies Tbilisi residential customers. 
 
5. (C) Thus, we roughly estimate that under normal 
circumstances, and assuming agreement can be reached on 
continued supply from Azerbaijan, Georgia will have at least 
3.5 million cm of gas per day from Azerbaijan and from 
Armenian transit to meet its estimated 7 million cm per day 
January consumption.  The rest, 3.5 million cm, will have to 
be purchased from Gazprom in Russia unless Azerbaijan is more 
generous in the still ongoing negotiations with Georgia.  The 
upgrades to the SCP offtake and the other Azeri pipeline 
suggest that in a pinch, if no gas were available to Georgia 
from Russia, Azerbaijan could supply nearly all of Georgia's 
needs -- if the will is there and the price is right.  This 
fact, coupled with Armenia's continuing dependence on Russian 
gas, is Georgia's best deterrent to an intentional 
interruption of supply from Russia, such as is alleged to 
have occurred in January 2006.  It may also explain why the 
GOG is not showing the level of concern about winter gas 
 
TBILISI 00003146  002 OF 002 
 
 
supply that it did in late 2006. 
 
6. (C) Russian gas is expensive.  However, the Georgian 
economy absorbed a quadrupling of the price of gas from 
Russia since 2005, along with the Russian embargo, and still 
grew more than 10 percent in 2007.  Georgian gas consumers' 
contracts with Gazprom all run out on December 31.  Gazprom 
will undoubtedly seek a price increase for 2008 in its 
negotiations with the consumers.  The Georgian government 
does not conduct negotiations with Gazprom or with Russia 
directly.  We spoke to Geno Malazonia, General Director of 
Energy Invest, which uses gas for fertilizer production and 
electricity generation.  He said that Gazprom has not yet 
said what price it will seek, but that he expects a 10% or so 
increase.  Earlier this year, KazTransGaz's general director 
suspected that Gazprom would charge about $270 per tcm, 
compared to 2007's $235.  Such an increase will contribute to 
Georgia's problems with controlling inflation and to the 
lower estimate of growth expected for 2008 -- only 6% 
according to the Ministry of Finance, mostly because of the 
political uncertainty affecting foreign investment.  Tbilisi 
consumers are feeling the pinch from a nearly 50% increase in 
the residential gas tariff in April 2007.  They will likely 
see further increases in 2008. 
 
7. (C) Georgian officials continue to assure us they have no 
intention to purchase gas from Iran.  However, Deputy 
Minister of Energy Giorgi Abdushelashvili told us on December 
20 that the GOG would consider talking to Iran if it faces 
"nationwide freezing", as occurred in January 2006.  However, 
based on the analysis above, this seems to be a remote 
possibility at this point. 
TEFFT

Wikileaks

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