14 April 2020 Oil and Gas Sector of GEORGIA in the Transition Period
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Teimuraz Gochitashvili Oil and Gas Sector of GEORGIA in the Transition Period TBILISI 2020 უაკ (UDC) 622.691 622.24 Teimuraz Gochitashvili OIL AND GAS SECTOR OF GEORGIA IN THE TRANSITION PERIOD Tbilisi, 2020 The publication deals with the current state of oil and gas sector, prospects for its development and energy security of Georgia; it also focuses on regional oil and gas potential, production and delivery prospects to the European market. Special attention is paid to the transit and inland transmission pipelines, their reliability and safety, preconditioning security of supply to local and European markets. It also highligths the issues of harmonization of Georgian energy legislation with the European one and institutional structures as well as the integration of the market into the single energy space, discussing the corresponding legal grounds. The information presented in this publication, including assessments of the current state of the sector and scenarios for the development of the natural gas market, reflects only the personal opinion of the author, is not related to his job responsibilities and not reproduce the views or positions of his employer or government bodies Editor - Dr. Teimuraz Javakhishvili Language Editor – Tekla Gabunia All rights reserved by the legislation of Georgia „Meridian“ Publishing House, 2020 ISBN 978-9941-25-866-4 2 Acknowledgements I would like to acknowledge the help and support of my colleagues from Georgian Oil and Gas Corporation, including Dr. Soso Gudushauri, Dr. David Tsitsishvili. Ms. Liana Lomidze, Ms. Ia Goisashvili, Mr. Archil Dekanosidze, Mr. Suliko Tsintsadze, Mr. Irakli Chachibaia and others. I am also deeply indebted to many people, including those engaged in the energy sector of Georgia, who have discussed the issues in the publication. 3 TABLE OF CONTENT ABREVIATIONS AND PHYSICAL UNITS …………………………………………… 6 FOREWORD …………………………………………………………………………… 8 CHAPTER I ………………………………………..…………………………………… 1 1 1. REGIONAL MARKET ………………………………………………………………. 11 1.1. GENERAL TRENDS OF DEVELOPMENT ………………………………………… 11 1.2. REGIONAL ENERGY MARKET …………………………………………………….. 12 1.3. OIL AND GAS BEARING AND SUPPLY POTENTIAL ………………………….. 22 CHAPTER II ...............................................…………………………………………… 34 2. TRANSPORATION INFRASTRUCTURE …………………………………………. 34 2.1. SUPPLY OF OIL FROM CASPIAN FIELDS TO EUROPE ……………………….. 34 2.2. THE SOUTHERN GAS CORRIDOR ………………………………………………. 51 CHAPTER III ………………………………………………………………………….. 72 3. OIL AND GAS SECTOR OF GEORGIA …………………………………………… 72 3.1. MAIN PROBLEMS OF THE SECTOR …………………………………………… 72 3.2. PERSPECTIVITY OF OIL AND GAS DEPOSITS………………………………… 74 3.3. EXPLORATION AND PRODUCTION STATUS…………………………………. 82 3.4. GENERAL OVERVIEW OF NATURAL GAS SECTOR ………………………….. 84 - 3.4.1. NATURAL GAS MARKET ……………………………………………… 8 4 - 3.4.2. TRANSIT AND TRANSMISSION INFRASTRUCTURE ……………… 92 3.5. GAS COSUMPTION TRENDS AND FORECAST ……………………………….. 105 3.6. SPECIFIC ASPECTS OF SECURITY OF SUPPLY, CHALLENGES AND OPPORTUNITIES …………………………………………………………………. 109 - 3.6.1. SUPPLY DEFICIT ……………………………………………………….. 1 09 - 3.6.2. DEMAND/SUPPLY IMBALANCE ……………………………………… 113 - 3.6.3. POTENTIAL RISKS AND HAZARDS …………………………………... 117 - 3.6.4. CRITICAL INFRASRUCTURE …………………………………………. 121 - 3.6.5. POTENTIAL SOLUTIONS TO MAINTAIN SECURITY OF SUPPLY … 133 4 CHAPTER IV …………………………………………………………………………... 1 5 0 4. INTEGRATION INTO THE INTERNATIONAL ENERGY ORGANIZATIIONS ………………………………………………………………. 150 4.1. GENERAL ASPECTS OF INTEGRATION ………………………………………. 150 4.2. LAW OF GEORGIA ON ENERGY AND WATER SUPPLY ……………………… 152 4.3. ORGANIZATION OF THE MARKET …………………………………………….. 158 4.4. UNBUNDLING OF ACTIVITIES …………………………………………………. 16 6 4.5. OTHER IMPORTANT PROVISIONS OF THE LAW …………………………….. 171 REFERENCES …………………………………………………………………………. 17 5 5 ABREVIATIONS AND PHYSICAL UNITS ACER - European Agency for the Cooperation of Energy Regulators AGRI – Azerbaijan-Georgia-Romania Interconnctor AMBO - Albania-Macedonia-Bulgaria Oil Pipeline BAP - Burgas–Alexandroupolis (Oil) Pipeline BAU - Business As Usual Bcm – billion cubic meter BS – Blus Stream Pipeline BTC – Baku-Tbilisi-Ceuhan Oil Pipeline CAC – Central Asia – Center Pipeline CACGP – Central Asia – China Gas Pipeline CCGT – Combined Cycle Gas Turbine CNG – Compressed Natural Gas CNPC – China National Petroleum Company DSO - Distribution System Operator DWT - Deadweight tonnage EAOTC – Euro-Asian Oil Transportation Corridor EASC - Euro-Asian Council for Standartization, Metrology and Certification EnC - Energy Community EWGP – East-West Gas Pipeline System FLNG - Floating Liquefaction of Natural Gas Plant GE Power – General Electric (Manufacturer of Power Generation Equipment) GEE - Georgian Energy Exchange GGTC – Georgian Gas Transportation Company GOGC – Georgian Oil and Gas Corporation GNERC – Georgian National Energy and Water Supply Commission (Commission) HHI - Herfindahl-Hirschman Index HPP – Hydro Power Plant IGAT – Iranian Gas Trunk Pipelines ICP - Intra-Caspian Pipeline ISO – Independent (Transmission) System Operator ITO - Independent Transmission Operator kWh- kilo watt hour LEWS – Law of Georgia on Energy and Water Supply LNG – Liquefied Natural Gasd LPG – Liquide Petroleum Gas Mcm – million cubic meter Mbd – Million barrels per day Mta – million ton per anum NS – Nord Stream Pipeline 6 NSGP – North-South Pipeline System OIES - Oxford Institute for Energy Studies OTC – Over-The-Counter (trade) PEOP – Pan-European Oil Pipeline SCP – South Caucasus Pipeline (Baku-Tbilisi-Erzerum Gas Pipeline) SCPX - South Caucasus Pipeline Expansion Project SGC – Sothern Gas Corridor SOCAR – State Oil Company of Republic of Azerbaijan SSO - Storage System Operator TANAP – Trans-Anatolian Pipeline TAP – Trans-Adriatic Pipeline TAPI – Turkmenistan-Afganistan-Pakistan-India Pipeline TBP – Trans_Balkanian Pipeline TCP – Trans-Caspian Pipeline TNO - Transmission Network Owner TPP – Thermal Power Plant TS – Turkish Stream Pipeline TTF - Title Transfer Facility (European Gas Trading Hub in Holland) TYND-Ten Year Network Development Plan (of Transmission Infrastructure) MCR - Market Concentration Ratio ULCC – Ultra Large Crude Carrier VIU – Vertically Integrated Utility VLCC - Very Large Crude Carrier WREP – Western Route Exsport Pipeline (Baku-Supsa Oil Pipeline WS – White Stream Project 7 FOREWORD Energy of Georgia faces significant challenges and opportunities. Demand on the main energy products: electricity, natural gas and petroleum products has significantly increased during the recent period. Hindering of construction of large hydro power generation facilities and scarcity of local oil and gas resources predetermine unfavorable tendency of growth of the country’s dependence on import. At the same time the process of active implementation of the European legislation into the energy sector of the country has been commenced which is associated with new challenges and significant opportunities. Ensuring energy security and guaranteed supply of the country’s population and economy with affordable energy resources represents a task of critical significance, which is complicated by the geographic location of the country isolated from the partners of the Energy Community and the EU and, inability of supply diversification of the natural gas, which is one of the main components of the total energy balance, will significantly complicate the process of formation of an open and transparent competitive market. On the other hand, favorable location of the inland territory and seaports connecting to the international supply routes of hydrocarbons between the Caspian region rich in resources and Europe dependent on import of energy resources predetermines successful implementation of the transit projects through the territory of the country, which are playing an important role in ensuring security of supply to word’s energy markets. Potential of the neighbor Azerbaijan and other countries of the Caspian region creates further opportunities for the development of new oil and gas transit projects, implementation of which will increase the significance of Georgia as the key player of the international energy market. The sensible implementation of the new Law of Georgia on Energy and Water Supply, which represents an adapted version of the European Energy Acquis allows to establish competitive market(s) based on organized trade in the relatively short period of time and integrate the energy sector of the country into European structures. As a result, the role of local content in ensuring the energy security of the country will be increased and the threats related to the dominance of state companies of foreign countries in significant segments of the market will be minimized. Presentment of a systemized results of the studies on the current state of oil and gas sector in such conditions, prospects for its development and energy security of Georgia, as well as the brief but significant information on the regional oil and gas potential, production 8 and delivery to the European markets is extremely important. Special attention has to be paid to transit and inland transmission pipelines, their reliability and safety, preconditioning security of supply to local and European markets. Harmonization of the Georgian energy legislation with the European one and integration into institutional structures of the Energy Community’s single energy space, based on the corresponding legal grounds, also represents a highly significant issue and the first priority of Georgia’s energy sector structural reforms. The