Georgia’s Gas Reserves: Resource or Disadvantage?

The next months will be decisive for the future of Georgia as a gas producer. The arm-wrestling between Russia and Western countries is indeed of great interest for countries sharing some of Kiev’s fears. 

Ukraine remains under the global spotlight, but the risks do actually go beyond its borders. Georgia, with its 4.5 million inhabitants, could easily become a gas exporter, given the 8.5 bcf of proven gas reserves and likely large unproven reserves in the Black Sea. What remains to be seen is whether the tensions in the area will impede developments of gas projects or, conversely and more probably, push the West to fund production to increase Georgia’s independence from neighbours. 

Located at the crossroads of Western Asia and Eastern Europe, the country is also rolling up its sleeves, taking some active steps to foster a higher degree of independence from Russia. In this context, Tbilisi is also trying to launch an offshore licencing round.

“Currently, we are working on the terms and conditions of the tenders of the offshore licensing round,” Giorgi Tatishvili, Head of The State Agency of Oil and Gas. 

But to do so, Georgia needs and wants Western support. 

“The West, with its strong support for Georgia to integrate the country into EU and NATO, can strengthen trust and build confidence about Georgia,” Tatishvili explained to Natural Gas Europe. 

Tbilisi is striving to achieve NATO membership. Georgia joined the NATO-run Partnership for Peace in 1994, opening the doors to a stronger cooperation with the US-led organization. After the Rose Revolution in 2003, Georgia quickly moved closer to the North Atlantic block. In 2011, Georgia was called ‘aspirant partner’ by NATO, along with Bosnia Herzegovina, Macedonia, and Montenegro. Georgian intentions are clear.

“Georgia's foreign policy priorities are founded on the values established in modern democratic world. This interrelation allows us to ensure international support in accomplishing our priorities. Georgia absolutely welcomes and shares principles and values of democracy and strives to become a member of NATO. This commitment is the foreign and security policy priority, which is based on a multi-ethnic population spectrum support, which is around 75% of population of Georgia,” Tatishvili commented.

At the same time, European institutions are stepping up their efforts to strengthen their economic ties with the country. 

‘The assistance measures … will also support the implementation of Association Agreements, including Deep and Comprehensive Free Trade Areas, signed, or shortly to be signed between the EU and Ukraine, Georgia and Moldova. Priority investment projects for the three countries will be based on a mix of funds, subsidies and loans, from a range of different actors,’ reads a note recently released by the European Commission.

WIDER CONTEXT: US AND RUSSIA 

The US Agency for International Development (USAID) has a specific program for Georgia, ranging from gender equality to trade. Recently, the agency also revitalized the East-West gas pipeline project. Two sections of the gas pipeline, which stretches for a total of 43 kilometres, have been reportedly funded by USAID. They should be completed by October 2014.

But that is just one part of the story. In reality, these developments are a drop in the ocean, as the first offshore licencing round would outshine these investments. The licencing round would open the doors to international companies and investors. This would be the achievement that Tbilisi is waiting for; it would also be the stepping-stone Brussels and Washington want to expand their influence in the Black Sea.

The Black Sea is indeed the place where the rivalry between Russia and the West will soon materialize, as international stakes in the area cannot be anything but significant. Despite some doubts about the reserves given the lack of exploration activities in the area, technological improvements and diplomatic reasons could indeed push companies to tap these deep-water reserves. OMV Petrom and ExxonMobil discovered 1.5-3 tcf gas in 2012. It is logical that this first deep-water discovery could pave the way to other investment decisions, also in the ‘Georgian’ section of the Black Sea.

On the other hand, it is in Moscow’s interest to hinder developments. Russia’s annexation of Crimea is already threatening ExxonMobil’s offshore drilling plans in the area. The $735 million investment by the group of global energy companies could be scaled down because of the weakness of the Ukrainian government and uncertainties about borders. It comes as no surprise that, on the other side of the pound, Georgia is struggling as well.

INTERTWINED FATES: UKRAINE AND GEORGIA 

In this sense, Georgia’s energy assets are closely related to Ukraine’s future. Coherently, the relations between the countries are frequent. Georgia’s former president Mikheil Saakashvili recently went to Independence Square to hold meetings with Yulia Tymoshenko and Vitali Klitschko. This move is perfectly in line with the attempts of the two countries to team up for a common cause. Russia’s neighbours perfectly know that energy projects are not only about economics. The geopolitical dimension is the one that matters the most if your neighbour is a gas supergiant dwarfing your soft and hard powers.

“It is obviously difficult to create a good business environment with Russia occupying 20% of the country. We can do it in two ways. Firstly, we can go through arbitrations within International Bodies. Secondly, we can show that our business environment is better than the one under Russia,” said a Georgian official during the Black Sea and Caspian Energy Conference in London.

 GEORGIA IS MORE A BATTLEFIELD THAN A PROTAGONIST OF ITS OWN FUTURE

Georgia is trying to create its future. Tbilisi perfectly knows that its international relations are difficult and unstable. That is why it is asking a Western support that goes beyond Secretary of State John Kerry’s simple declarations of illegitimate Russian military presence in Abkhazia and South Ossetia. Georgia is implicitly asking Washington and Brussels to seriously commit, both on a political and financial level. 

In the West, ministers and experts could advocate that the success of energy projects in Georgia would stem from the ability of its government to shed lights on their plans. According to some pundits, the Black Sea offshore operations would gain momentum in case of a clear division of the waters between Georgia, Russia, Ukraine, Moldova, Romania, Bulgaria and Turkey.

But this process is not trivial or straightforward. Georgia is definitely aware of the importance of the wider context, which is the one that really matters. Borders in the area are not like in the West. They could change in short time. Crimea is a strong reminder, suggesting that Ukraine and Georgia are more a battlefield than the protagonists of their future. 

The destiny of Ukraine is tragically intertwined with the future of other countries in the area, equally squeezed between Moscow, Brussels and Washington. Oil and gas assets in the area are consequently dependant on the confrontation between the two blocks. The situation is far more complex than portrayed by some Western politicians, and the outcome is difficult to forecast. The only clear thing is that these countries face the risk of paying a high price for many years to come.

 Sergio Matalucci