Gas Storage Project Shelved
27 October, 2011
Gas Storage Project Shelved


Gas storage construction project in Georgia seems shelved for about a decade unless investors take interest in it.  Construction of the gas storage in Georgia, which requires at least USD 400 million is no longer a pressing energy security project. The project is supposed to come true only through commercialization focused on profit.

Georgian government does not consider the much spoken gas storage construction as a matter of priority from energy security point of view as far as the ten-year contract with

Azerbaijan national gas and oil  company SOCAR concluded in 2010 on bulk supply of gas,  secures due volumes of strategic gas [in compliance with the EU energy security requirements] till 2020.

“We consumer so small quantity of gas just 1.2-1.3 billion cubic meter that we can consider Azerbaijan as a gas storage in fact to Georgia till 2020 thanks to the contract concluded with SOCAR that also provides with stable price on the contracted gas,” Mariam Valishvili, Deputy Minister of Energy and Natural Resources  of Georgia, told Georgian Journal.

On the other hand government developed due infrastructure to insure uninterrupted gas inflow to the country. Georgia is supplied from three pipelines at the moment: two connecting with Azerbaijan [including Shah-deniz pipe] and the third one running from Russia to Armenia that leaves gas as transit fee in Georgia. It is impossible that all of them would be damaged at the same time government believes.

Moreover, government worked out a strategic plan on reducing Georgian gas consumption by developing hydro power plants in order to gradually supplant gas-dependent thermal power plants consuming almost half of entire gas consumption of Georgia in four months of cold time. Thus gas storage lost its priority fot the country from security point of view and the issue seems delayed as far as 2018-19 in Georgia when the contract with SOCAR comes near to expiration.

Construction of gas storage can become pressing only if gas consumption increases 4-5 folds that means at least 5 big metallurgic factories to be put into operation-a prospect scarcely available to Georgia even in a long-run.

“All the remainder economic development including tourist sector may jack gas consumption of the country up by just 10-15% and this gap is very easy to fill,” Valishvili said.

The only way to make gas storage project true is commercialization of the project and attraction of investors in it.

Aleko Khetaguri, Ministry of Energy and Natural Resources of Georgia, accentuated in his report at parliament on October 5, 2011 that feasibility study over the gas storage project is through and government seeks for investors willing to participate in the project.

Feasibility study was completed by this past February and government started touting the project much before the study launch but not a single one responded as yet. Investors can be interested only in a region-wide gas storage idea that can bring commercial benefits by selling gas or if they have a strategic interest in gas storage in Georgia.

Negotiations with Azeri SOCAR believed to be the most eligible investor came to no avail, the company prefers to invest USD 5.5 billion in an oil refinery in Turkey rather than invest in gas storage in Georgia at the moment.

The idea of construction gas reservoirs traces back to early 90s of the past century. Several projects were worked out, thousands of dollars spent, but projects were shelved ultimately.

Construction of expensive of gas storage was considered as a luxury scarcely affordable for a poor country like Georgia.  But the gas sabotage staged by Russia in Georgia in winter of 2006 gave a new impetus to the issue and gas storage topped the agenda. It became one of the pressing issues out of the EU energy security requirements and since finances were still a problem Washington came as a helping hand.

The US funded Millennium Challenge Georgia (MCG) earmarked USD 18 million to feasibility studies implemented by Danish-based Ramboll Oil and Gas A/S Henrick Juhl on potential construction site of Ninotsminda oil deposit near Tbilisi in 2009-2010.

Ninotsminda oil deposit was chosen for two key reasons: firstly because Ninotsminda with the potential capacity of 500 million cubic meters (cm) is the largest, and secondly it has a potential to enhance its capacity to 5 billion cubic meter (bcm) and become into a commercially-profitable regional gas-reservoir in the long-term prospect.

The Ramboll feasibility study confirmed governmental expectations saying Ninotsminda technically can meet expectations and is available for developing regional-scale project that requires huge finances. The overall cost of the regional project was not calculated by this study however, it is a matter of additional research, Valishvili said. As to the cost of gas storage with approximately 300-700 million cubic meter (mcm) of gas capacity that meets local demands is estimated at about USD 400 million that Georgian government cannot afford at the moment as it faces much more pressing priorities.


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