Well the situation East of Georgia continues to evolve. I thought to begin there since, as mentioned in an earlier post, there are a number of small countries in the strip that runs south of Russia and over into China where oil and gas issues will make the nations a bit more internationally prominent. Consider, for example, Azerbaijan. It was only a couple of days ago that, in the face of Russia doubling the gas price that Azerbaijan cut off its oil flow to Russia. It shut down its oil exports in order to fuel some of the power stations that would no longer be supplied with the Russian gas. The original plan was to do this until the gas from the Shakh Deniz field becomes available in April (though that may now have slipped to June).

Interestingly gas from Shakh Deniz was also scheduled to be supplied to Georgia at a price of $120 per thousand cubic meters (tcm). This is just over half the price that the Russians have been asking. However, since Georgia needs about 2 billion cu m per year it will still need to buy 1.1 bcm from Russia at the higher price. Azerbaijan has been supplying around 80,000 bd of oil to Russia through the Baku-Novorossiysk oil pipeline which belongs to the Russian pipeline company Transneft. Part of the intent of the increase in price to Azerbaijan was, apparently, to reduce their ability to supply Georgia. Azerbaijan bought 4.5 bcm of natural gas from Russia last year at a cost of $500 million. Apparently the thought was that, at the higher price, Azerbaijan would have to cut back on imports, and thus have less to make available to Georgia. However, by switching their power stations to oil-burning, they appear to have thwarted this idea.

Natural gas from Shakh Deniz will be fed into the Baku-Tbilisi-Erzerum pipeline, which is almost ready to receive and deliver the gas. Note that this is a different pipeline to the recently completed Baku-Tbilisi-Ceyhan pipeline, which carries oil and which, between January and October carried some 4.8 million (though it does not say if this is tonnes or barrels).