Sun, Dec 24, 2006 - Page 11 News List

Gazprom to double price of natural gas for Georgia


This picture taken last Jan. 26 in the center of Tbilisi shows Georgians waiting in a line to fill gas cylinders. Russian natural gas giant Gazprom announced on Friday that it had concluded a deal with Georgia to supply natural gas at the price of US$235 per 1,000m3 from next year.


Gazprom, the Russian natural gas monopoly, agreed on Friday to continue supplying natural gas to Georgia, but at double the price.

Aleksandr Medvedev, Gazprom's deputy chief executive, said three Georgian importers had agreed to buy gas at the company's asking price of US$235 for 1,000m3, close to the prices paid by richer nations in Europe. Gazprom is insisting it will raise prices to European levels throughout the former Soviet Union.

The latest contract is considered short-term on both sides. Gazprom notes that the contract does not cover all of the country's needs and that it could still cut off supply. And Georgia says it is close to obtaining an alternative supply from a BP-run natural gas platform off the Caspian Sea coast of Azerbaijan, Georgia's eastern neighbor.

That option for Georgia, a country trying to keep from being bullied by the company's politically tinged pricing practices, comes as US policies of supporting pipeline routes that skirt Russia are coming to fruition. That move deprives Gazprom of its monopoly in the south Caucasus. Georgia says it will be mostly free of Russian gas by 2008.

Georgians still see a political motive behind Gazprom's increase, which the country initially sought last month at the same time Russia imposed other sanctions on Georgia. Those sanctions were intensified after Georgia had deported four Russians accused of spying. The restrictions include bans on wine, mineral water and fruits and vegetables and a suspension of air, rail and road links.

Georgian President Mikheil Saakashvili had secured the supply from the BP platform, which is coming online this winter, after talks with BP and Azerbaijani President Ilham Aliyev. The gas will be exported through a pipeline that runs from Azerbaijan through Georgia to Turkey.

Much of the gas has already been sold to Turkey in futures contracts. To draw gas from the pipeline, Georgia needed first to persuade Turkey to concede some of this supply, which happened this week, Georgian Prime Minister Zurab Nogaideli said on Friday.

"For us, it is cheaper," he said. "And it is important for us that the south Caucasus corridor is operational" for natural gas shipments from the Caspian Sea to Georgia, and on to world markets. The price offered by the BP-led consortium is a commercial secret, he said, but is "much better" than what Gazprom is offering.

Yet as the political deal to free Georgia from Russian gas as early as next month came into place, a well failure on the platform this week required Georgia to buy gas from Russia on short-term contracts, leading to the agreement announced on Friday. The field's start was delayed until February.

Georgia's existing contract with Gazprom for natural gas at US$110 for 1,000m3 expires next Sunday. The standoff over a new contract, coming a year after Gazprom halted shipments to Ukraine in the middle of winter in a price dispute, was only partly resolved as the contracts will not cover Georgia's entire demand, Medvedev of Gazprom suggested.

Speaking at a news conference in Moscow, he said Gazprom had contracted for 1.1 billion cubic meters; Georgia's total gas demand is about 1.8 billion cubic meters annually. He made clear Gazprom may still halt shipments.

"If there's no contract, there's no supply," he said.

Nogaidelli said two additional contracts will be signed soon, meeting all of Georgia's demand, and said he did not anticipate Gazprom would shut off the gas on Jan. 1. Medvedev described US$235 as a market price. Still, the company's prices vary. Ukraine will buy gas for US$135 per 1,000m3 next year and Armenia, Georgia's southern neighbor, for US$110 in addition to allowing Gazprom control over some pipelines. Medvedev said the contracts would extend through the first quarter of next year.

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