Georgia centre stage in Europe's struggle for energy

By Dan Shea Jul 10, 2007, 11:28 GMT

Tbilisi/Moscow - With its wintertime blackouts and electricity shortages, the former Soviet republic of Georgia hardly seems to represent the future of energy markets.

But in the throes of winter in 2006, an explosion tore through a Russian pipeline supplying Georgia, a nation of 5 million in the Caucasus Mountains, with the natural gas it uses for heating.

While repairs dragged on, the Georgian capital relied for days on kerosene and wood for heating.

Georgia's pro-Western president, Mikheil Saakashvili, accused Moscow of sabotaging the pipe, a charge the Kremlin strongly denied, blaming terrorist groups for the blast.

But with the pipeline from Georgia's main energy supplier damaged, Tbilisi looked to Iran for emergency gas supplies.

And since then, the Caucasus nation has turned to its neighbour Azerbaijan, with a 1-billion-dollar gas pipeline due to come online connecting Azerbaijan's rich energy deposits to Georgia, Turkey and Europe in a major step towards energy independence.

With the issue of energy independence a hot topic not only in Georgia - a small country politically at odds with Moscow - but also in a European Union that receives more than one-quarter of its gas from Russian fields, Georgia has now become a hotspot in a new contest for the world's energy supplies.

As economic growth in developing nations such as India and China drives worldwide energy prices ever higher, both West and East are actively seeking new sources of oil and gas.

And as the world's energy majors look to tap Central Asia's vast hydrocarbons deposits, a Russia resurgent thanks in large part to the billions it is reaping from its own energy sales has made it clear it also wants a part of the pie.

The result is what some have called a 'new Great Game,' referring to the 19th-century contest European powers waged for influence in Central Asia.

A month before last month's Group of Eight summit with the leaders of the West's leading powers, Russian President Vladimir Putin made a three-day visit to Turkmenistan and Kazakhstan.

The leaders of the three former Soviet nations agreed to build a pipeline from Turkmenistan's rich gas fields to Europe by way of Russia and Kazakhstan, appearing to thwart a long-hoped-for Western-backed pipeline across the Caspian Sea into Europe.

Russia has gone head-to-head with the West on gas supplies in Europe as well, with countries including Hungary, Austria and Bulgaria considering the construction of gas-transportation infrastructure for Russian gas monopoly Gazprom in Eastern Europe.

But with the EU yet to put together a unified energy policy, Western Europe has been less successful in diversifying energy supplies than Tbilisi.

Atis Lejins, head of the Latvian Foreign Policy Institute, has said Moscow wants to 'regain its influence' after 'losing' Georgia.

'In a few years Georgia will be independent of Russian gas, thanks to new wells being opened in the Caspian,' Lejins said.

In addition to the gas pipeline, the Baku-Tbilisi-Ceyhan (BTC) pipeline is already sending Caspian oil through Georgia to Turkish and European markets, with estimated oil flows eventually to reach 1 million barrels per day.

But if a new, energy-based Great Game is indeed under way, Russia appears to have the upper hand.

While Gazprom's biggest threat to its pole position in Europe - an Austrian-led gas pipeline project known as Nabucco - has struggled under lack of funding, the Russian gas monopoly has recently pushed for a pipe to deliver Russian gas to Italy and Austria via Bulgaria.

After Gazprom and Italian energy company Eni last month agreed to launch a feasibility study on the 13-billion-dollar pipeline, Gazprom executives said the so-called South Stream pipeline was 'not an alternative' to Nabucco.

Energy analysts such as Vladimir Socor of the US-based Jamestown Foundation, however, have called the South Stream a 'rival' to Nabucco, but EU officials insist the Nabucco project is still on.

'Nabucco,' EU Energy Commissioner Andreas Piebalgs was quoted by media as saying last week, 'is our beacon project.'