TRANSIT UTOPIA

Agreements reached regarding Iran's nuc-lear programme and the expected lifting of sanctions imposed on Tehran has intensified the activities of many regional and global players towards boosting economic cooperation. On the one hand, years of sanctions have significantly in-creased the demand of Iran's economy for new technologies and investments. On the other hand, this opens up the door for Iranian oil and, most importantly, gas to the world market.

Iran has the world's largest gas reserves, overtaking recognized leaders in production and exports, such as Russia, Qatar, and Turkmenistan. However, sanctions hindered the development of Iran's gas industry. After they were lifted, Europe started thinking about possibilities of getting Iranian gas within the framework of the policy of diversification.

Georgia and Armenia have therefore decided to snatch their own pieces of the pie. 

At present, Georgia buys natural gas from one source - Azerbaijan. In this context, in order to diversify its gas supply sources the Georgian leadership has decided to start talks with Russia and Iran on additional volumes for entrepreneurs who are receiving Azerbaijani gas at commercial prices.

Georgian Energy Minister Kakha Kaladze explained that this is because there is not enough gas in Azerbaijan.

However, at this stage only Russia has the capacity to supply natural gas to the South Caucasus. But the history of Russia supplying Georgia with gas is clearly marred by politics that resulted in Russian supplies terminated even in winter. The first Azerbaijani gas went to Georgia in the cold winter days of January 2007, after Russian gas supplies were suspended because of repairs on the pipeline. It is not surprising that the statement by Kaladze expressing willingness to conclude with the Russian company Gazprom an agreement on natural gas supplies raised a storm of protest within the [Georgian] opposition. And the statement about shortage of Azerbaijani gas was rejected by President Ilham Aliyev during his recent visit to Georgia. Aliyev said that proven gas reserves in his country are 2.6 trillion cubic metres. This makes it possible for at least 100 years to make large volumes of natural gas available to meet both Azerbaijan's own demand and that in neighbouring and European countries.

In any case, Kaladze is set to hold talks on the possibility of receiving gas from Iran and on transit of gas to Europe. Georgian billionaire Bidzina Ivanishvili has also expressed confidence that Iranian gas will be supplied to Georgia.

It should also be noted that Baku's consent is necessary for these ambitious plans to be implemented because the real infrastructure for gas supply from Iran to Georgia is located in Azerbaijan.

The Iran-Astara-Qazax gas pipe-line was built back in the distant 1970s. In Gardabani, it joined Georgia's gas system and had a throughput capacity of up to 10bn cubic metres of gas. The option of supplying Iranian gas to Georgia was examined back in 2006 but was postponed until better times because of the sanctions imposed on Iran and because of being expensive.

Certainly, Georgia can count on the possibility of Iranian gas passing via Armenia, and Yerevan has even started promoting the new Tehran-Yerevan-Tbilisi energy axis.

This is about the existing 140-kilometre pipeline from the city of Tabriz [in Iran] to the Megri gas distribution station [in Armenia]. However, its capacity is only 1.1bn cubic metres, which can be increased by a maximum of two times over. An even more important thing is that this pipeline is owned by Russia's Gazprom, as is Armenia's entire gas distribution system. What is more, if Armenia's gas transportation system is used to deliver gas to Georgia, it means that Iran will supply gas to Armenia itself as well. There is just one pipeline, and Gazprom is currently using it to deliver gas to Armenia. Will the Russian monopoly agree to abandon Armenia's gas market? Even leaving political aspects aside, for purely economic reasons no company will agree to make its infrastructure available to a direct competitor.

Also important is the question - at what price is Georgia going to buy Iranian gas? For example, natural gas is supplied to Turkey from Iran, Russia and Azerbaijan, and the price of Iranian gas is the highest.

On the other hand, even if Tbilisi and Tehran do agree on gas supplies to Europe, then how does Armenia fit in this route?

Apparently, Yerevan believes that after coming to Georgia via Armenia Iranian gas could then be delivered to Europe via the TANAP and TAP pipelines. However, this is a utopia, because Azerbaijan, which holds over 50 per cent of shares in TANAP, will not agree to Armenia's involvement in any regional projects as long as Azerbaijan's occupied lands are not liberated.

Theoretically possible is the option of Iranian gas being delivered via Armenia to Georgian ports in the Black Sea and then getting liquefied and delivered to Europe. But this requires infrastructure to be built to liquefy natural gas. If this happens, Iranian gas will definitely be sold in the region for a "golden price", taking into account the costs of delivering it to Georgia and the costs of building an LNG plant.

At the same time, on the whole, Tehran is not interested in gas supplies via pipelines because key gas deposits are located in the southern part of this country near the Persian Gulf. Even if Iran was interested, Iranian gas is in no need of making a detour through the South Caucasus to reach Turkey, given that they have joint borders. A more attractive option for Tehran is to build an LNG plant on the shore of the Persian Gulf, and then have liquefied gas shipped to world markets by tankers.

That Tehran is not considering the construction of a new pipeline towards Europe can be seen in the outcome of the visit by Russian Energy Minister Aleksandr Novak to Iran, negotiations held and the possibility of swap supplies of natural gas. This is about Russian natural gas supplies to northern Iran in return for receiving the same volumes in the Persian Gulf, which the Kremlin is willing to sell in Pakistan and India.

Naturally, the proposal for swap supplies between Russia and Iran requires not only negotiations to be held to confirm volumes but also large-scale technical work to build relevant infrastructure. And even in this case, Russia's Gazprom will prefer to supply Russian gas via Azerbaijan rather than use the Georgia-Armenia-Iran option.

It's not even that Russia's Gazprom will have to supply additional volumes for gas transit via Georgia, but that Azerbaijan has underground gas storage facilities that can store up to 6bn cubic metres of gas. Therefore, Russia is most likely to opt for supplying Russian gas to Iran via Azerbaijan.

In any case, no role whatsoever can be seen for Armenia in any of the possible options, and it is not clear on the basis of what utopian ideas Yerevan is trying to squeeze itself into regional projects.