Shah Deniz prospects
06 February, 2014
Shah Deniz prospects
The long expected final decision on the second phase of the South Caucasus Pipeline transporting gas from Azerbaijan’s Shah Deniz offshore gas field to Europe via Georgia and Turkey was made at the end of 2013. Georgia as a transit country has great expectations from both geopolitical and economic points of view.
The Shah Deniz Stage 2 project is set to bring gas directly from Azerbaijan to Europe for the first time, opening up the Southern Gas Corridor. Th
is corridor is projected to counter the 35-year gas supply monopoly of Russian Gazprom to Europe, particularly to its South-Eastern countries, and to enhance the geopolitical importance of transit countries. Georgian analysts expect that the strengthened political importance of Georgia will ease the Euro-integration process.
On the economic side, the Georgian government expects USD 400-700 million investments in the country from implementation of the Shah Deniz second phase, adding a further 16 billion cubic meters of gas (bcm) per year to approximately 6-7 bcm of the first phase currently operational. Europe has already contracted 10 bcm per year, through 25-year contracts, and Turkey is taking 6 bcm.
The first gas from the Shah Deniz II project is expected by 2018 for consumers in Turkey and Georgia, and a year later to Europe - Greece, Bulgaria and Italy. The project also entails construction of the Trans Anatolian Gas Pipeline (TANAP) across Turkey, and construction of the Trans Adriatic Pipeline (TAP) across Greece, Albania and into Italy.
Expansion of the 690km long South Caucasus Pipeline (SCP), which began in 2006, envisages the building of a new pipeline with a length of up to 400 kilometers, 55 of which will be built in Georgia in parallel to the existing SCP. In addition, construction of two compression stations is also planned.
This may bring USD 400-700 million into Georgia. But according to the official brochure of the Shah Deniz II project, its implementation is expected to provide USD 2 billion in direct foreign investment to Georgia, and 20% of the capital expenditure is planned to be spent on goods and services provided by local Georgian suppliers.
Around two thousand jobs will be created through construction projects in Georgia. Pipes and other construction materials will be shipped via the port of Poti on the Black Sea and then onwards by railway to Azerbaijan. Besides, the contract on transit allows Georgia to buy 5% of gas transported through the pipeline at a preferential price. According to energy sector researchers, if the pipeline is filled by the expected 16 bcm, Georgia will get 800 million cubic meters of gas on the cheap. Should the first stage capacity of about 6 bcm be put in place, Georgia may gain 1.1 bcm of cheap gas.
According to Liana Jervalidze, an energy analyst in transit issues, Shah Deniz 2 is of critical importance to Georgia. The country may receive higher volumes of cheap gas at last. But in fact the first stage did not justify expectations, and instead of the estimated 9 bcm of peak capacity, only 50-60% was transported.
Accordingly, instead of the expected 300 million cm of cheap gas, Georgia enjoyed just around 200 million cm yearly. “Our benefit from the Shah Deniz pipeline is the transit fee, and the bigger the transported volume, the higher benefit we get. Even if 80% of the expected 16 bcm is transported, it will be great for us,” Jervalidze said.
She believes extra volumes of cheap gas will open new investment opportunities to Georgian industry. The upcoming 230 megawatt thermal station in Gardabani may use this gas; also, an industrial zone created near Poti port that is unused may get revived and developed – cheap energy prices may attract investors to the zone. Besides, there is talk that the first stage gas may amount to zero by 2022.

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