Georgia Trying To Reduce Dependence On Azerbaijan To Negotiate With Russian Gazprom: Experts

Azerbaijani Political Scientist Ilgar Velizade and Economist Natig Jafarli tried to explain Azerbaijan and Georgia relations in the context of negotiations with the Gazprom. The two personalities from Azerbaijan were interviewed by the EA Daily correspondent on several key issues.

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The President of Azerbaijan received delegations from countries participating in the fifth ministerial meeting within the framework of the Southern Gas Corridor Advisory Council. How do you rate these meetings overall?

Ilgar Velizade:  Today, “ Southern Gas Corridor” is one of the key elements of the EU energy strategy. Therefore, it has so much importance. But today this corridor, besides the economic one, also plays a geopolitical role. It is intended to consolidate energy flows from the countries of Central Asia, the Caucasus and the Middle East towards southern Europe.

This is a long-term goal, but the short-term goal is the delivery of Azerbaijani gas to Europe. A great deal of practical work has already been done in this direction, and a certain part of the gas is already being delivered to Europe under the TANAP project, and I think from the beginning of next year Azerbaijani gas will reach other consumers with whom the agreements have been signed.

Natig Jafarli: South Kazakhstan is one of the priority projects for the EU and Azerbaijan. One of the goals of this project is that in the future this project will play an important role in reducing the EU’s dependence on Russian gas. But if you look at the issue globally, then the volume of Azerbaijani gas is not sufficient to reduce dependence, we will sell only 10 billion cubic meters.

There are great prospects that regional countries, such as Turkmenistan, Iraq, if the issue of sanctions is resolved, Iran and even Israel will join the cooperation with this project. Pipe capacity in the future will reach up to 32 billion cubic meters of gas. This is already a significant amount, and European countries are very interested in ensuring that this project will work at full capacity in the future and thus its dependence on Russian gas will be reduced.

The SKG somehow overlaps with the Russian project “Turkish Stream”. Can these projects be considered competing?

Ilgar Velizade: Naturally, it intersects with the “Turkish stream”. Today we are not talking about the competition of these pipelines, but about their interaction. This is a more effective way to implement the economic strategy of all participants. Of course, there is a certain kind of competition, but I must say that when people talk about competition, they often forget about such an element as the study of markets. Before a project is built, negotiations are underway for the sale of its gas. Here the important point is the balance of gas supplies, the price of the energy supplied. In this matter, the interests of Azerbaijan and Russia coincide, and none of these countries is going to sell gas at low prices. Therefore, there is an interactive format between countries.

By and large, Azerbaijani gas is not a competitor for Russian gas, because they are supplied to markets in certain proportions that fill an empty niche. It is important for buyer countries to diversify their sources, and Azerbaijani gas is a condition for diversification. Russia understands this very well, and therefore there are no perplexities to Azerbaijan’s gas.

Moreover, according to the third energy package, gas should be distributed on the main pipelines by proportions, where each supplier has its share. It is also important to say here that Russian gas in certain proportions can also be sold through the South Caucasus Gas. Thus, on the one hand, the conditions of the third energy package are fulfilled, on the other hand, countries are able to avoid unnecessary competition and sell gas at prices that are primarily suitable for gas producers.

Natig Jafarli: This can’t be said a direct competitor because the “Turkish Stream” was conceived in order to reduce dependence on a transit country like Ukraine. On the other hand, there are certain problems with the implementation of the Nord Stream project, so the Turkish Stream is of particular importance for Russia. Europe is also interested in this project. These projects are not competitors, with these projects the volume of gas to Europe will increase, and this will give impetus to a flexible pricing policy on the part of the EU.

A few years ago, the EU adopted the third energy charter, and now several points are expected to change. The meaning of this charter is that there is no monopolist on the market that dictates its own terms. For Azerbaijan, the existence of the Turkish Stream carries price risks. In this regard, these two projects compete with each other.

How will relations between Azerbaijan and Russia develop taking into account the fact that the West assigns Baku an important role in its energy plans designed to weaken Europe’s dependence on Russian energy resources?

Ilgar Velizade: The fact is that everyone understands that for Azerbaijan the main item replenishing the budget is the implementation of energy carriers. Having the opportunity to do this in Western markets, Azerbaijan receives additional financial opportunities that it actively invests abroad. One of the promising markets for investment in the Russian market. Naturally, Russia is indirectly interested in Azerbaijan to have this money, which in one way or another partially will go to the Russian markets. Today, in some regions of Russia, Azerbaijan is implementing a number of serious projects. Naturally, this capital is going to Azerbaijan from the sale of energy resources. It turns out to be such a kind of circulation of capital, which by and large is beneficial to Russia.

Those people who think that Russian political elites are not interested in supplying Azerbaijani energy resources to Europe were stuck in the 1990s. Because the reality is completely different. If Azerbaijan would not have finances, the implementation of the North-South project would be quite doubtful. Therefore, it is beneficial for Russia to be surrounded by rich neighbours.

Natig Jafarli: Russia since the beginning of the 90s was jealous of the projects that Azerbaijan has been implementing. But then Russia was not as strong as it is now, and therefore it could not prevent the construction of Baku –  Tbilisi –  Ceyhan (BTC). This project is one of the most successful projects in Azerbaijan, from which everyone made a good profit. Then there was the gas pipeline Baku –  Erzurum.

Now the Southern Gas Corridor is a continuation of Baku –  Erzurum, that is, they did not build a new gas pipeline, but only increased the branch from Turkey to Europe. Therefore, Russia would not have much influence on this project as it has proposed an alternative option for Turkey – the Turkish Stream.

Azerbaijan is balancing its relations with Russia. There are energy agreements between Gazprom and SOCAR on the supply of Russian gas to Azerbaijan. If necessary, Azerbaijan will buy about three billion cubic meters of gas from Russia. This is indirect compensation so that Russia does not remain outside the Southern Gas Corridor.

Recently the Minister of Energy of Georgia stated that they are negotiating with ” Gazprom ” and Iran on gas supplies and a reluctance to allow Azerbaijan’s monopolization of the gas market. Will this worsen the relationship between the two countries?

Ilgar Velizade: Several years ago, Georgia already had negotiations with Gazprom, and they failed. Azerbaijan cannot dictate terms to someone, so Tbilisi can interact with Gazprom and other companies. We should not be bothered. As far as the deterioration of relations between the countries is concerned, I think that it is not necessary to hypertrophy this moment and draw some conclusions from this as it is reflected in bilateral relations.

The competitive advantages of Azerbaijani gas are known because we sell gas at very cheap prices. Russia will not sell at such prices to Georgia because it will confuse Armenia. They will not sell gas to Georgia at a price which will be lower than that of Armenia. If Georgia is going to buy expensive gas from Russia to the detriment of its interests or for the benefit of its interests, this is an exceptional business of Georgia. This situation should not affect bilateral relations with Azerbaijan.

Natig Jafarli: Honestly, Georgia can be understood as a country that aspires to diversify its supplies. The recent decision of SOCAR to raise prices for commercial enterprises in Georgia did not comply with the Georgian government. As a lever of negotiations, the Georgian side has always resorted to the fact that they will agree on gas supplies from Russia. The volume of the Georgian market is not that big, the maximum need is one and a half billion cubic meters, and Azerbaijan is able to produce this gas. But the Georgian side, in order to avoid dependence on the dictation of prices by the Azerbaijani side, intends to negotiate with Gazprom. Therefore, these negotiations are taking place with an eye on Azerbaijan, if we do not raise gas prices, then perhaps the negotiations with Gazprom will remain just words.

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