Georgia is getting ready to reform its gas market by putting in new energy legislation. The demand for natural gas is increasing each year and Georgia’s gas contracts are expiring. Geopolitics make Georgia’s energy security even more vulnerable, given that the country doesn’t have enough local gas resources to satisfy its needs. Currently, only a few companies operate in the Georgian gas market.
However, Georgia’s approach to gas market regulation is set to change, as the country is teaming up with the EU4Energy Governance project to put in a new legal framework stemming from the EU’s Third Energy Package. Changes are aimed at opening up the monopolistic natural gas market, attracting investments and increasing gas supply security in the country.
EU4Energy Governance is a technical assistance project funded by the EU under the EU4Energy Initiative. It helps policymakers in the Eastern Partnership countries build regulations and further identify investment opportunities. Besides Georgia, other Eastern Partnership countries such as the Republic of Moldova and Ukraine will also benefit from the initiative. Regional activities of the project implemented by the Energy Community Secretariat also involve Armenia, Azerbaijan and Belarus.
The final deadline for adopting the gas-related EU acquis in full is due by the end of 2020. The new Energy Law is to be submitted to the Georgian parliament by the end of 2018.
Challenges facing the Georgian gas market
Azerbaijan remains the main supplier of natural gas to Georgia. Currently, the whole market is monopolised by its gas giant Socar. Georgia is also a gas transit country from Russia to Armenia, meaning it receives transit fees. Georgia also benefits from the transit of natural gas through the South Caucasus Pipeline. At the same time, however, domestic gas production remains insignificant.
The natural gas market of Georgia is a market of direct contracts. Currently, Socar companies dominate both the wholesale and retail markets. According to a report by the Georgian National Energy and Water Supply Regulatory Commission, three suppliers delivered natural gas to satisfy Georgia’s gas demand in 2017. The evaluation of the level of competition indicates that the market is highly saturated, which is characteristic of countries with developing markets.
As for the retail market, the two main suppliers delivering natural gas to retail customers are Socar Georgia and KazTransGas Tbilisi. Given that the distribution licensees are not prohibited to carry out supply activities, they are also suppliers in the relevant distribution area.
The natural gas remains one of the most significant energy sources in the country. In 2017, the demand for gas increased by 3.6% compared to the year before. In addition, consumption is characterised by seasonality, whereas 72% of total annual consumption occurs in the winter.
Teimuraz Gochitashvili is the head of the Strategic Planning Department at the Georgian Oil and Gas Corporation, a state-owned company. He outlines some of the challenges the Georgian gas market faces, such as high market concentration, monopolisation, supply deficit, expiration of long-term contracts and delays in supplies.
‘Gas consumption is increasing annually and according to our prognosis, it may reach up to 3.5 billion CBM by 2030, while our long-term contracts are expiring. Finding replacements is a challenge,’ says Gochitashvili.
Where should Georgia look for its gas?
Teimuraz Gochitashvili thinks that in the near future, Georgia’s key gas providers will remain Azerbaijan and Russia, given that there are ‘no technological nor commercial preconditions to receive gas from other sources’.
On the other hand, he says theoretically, there is a chance that Georgia could get its gas from Turkmenistan – and that might become more likely if the Trans-Caspian Gas Pipeline is built. The Trans-Caspian Gas Pipeline is a proposed subsea pipeline between Turkmenistan and Azerbaijan. ‘If Azerbaijan and Turkmenistan agree on the pipeline, then Georgia’s chance to receive gas from Turkmenistan becomes quite real,’ says Gochitashvili.