Gas Sector in Georgia (Current Situation and Sector ...

Gas Sector in Georgia(Current Situation and Sector

Regulation)

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In the natural gas sector, the Commission is authorized to issue natural gas transportation and distribution open-ended licenses.

There are 70 large and small natural gas distribution companies in Georgia, the largest being Kaztransgaz-Tbilisi Ltd. Transportation license is held by one company only – Georgian Gas Transportation Company Ltd.

From Azerbaijan and Russia natural gas is mported by Gazexport Company

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By 2009 Georgian transportation system has let through 2,812 million m3 of natural gaz, including transit to Armenia of 1,628 million m3 and 1,184 million m3 for Georgia

Natural gas for Georgian consumption;

Natural Gas transited to Armenia;

1184 mln. m3 1628 mln. m3

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Evolution of gas consumption in Georgia in 2000-2009

Natural Gas, Millions m3

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Transit to Armenia, 2000-2009

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Estimated capacity: 20 billion m3 annually

Actual volume of annually transported gasPeak – 6,9 billion m3 – 1992Low – 1,9 billion m3 – 2002Last year (2009) – 2,8 billioin m3

Estimated operational pressure: 5,5 MPa

Total Length 1832,18km

Linear part: 1456,6kmBranches: 366,71kmJoints: 12,87km

Highest altitude: 2,400mPeak difference of altitude: 2,400m

Import of natural gas goes through main-gas pipeline system (transportation system) with the following performance data:

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Pipeline is crossing more than 2,000 artificial and natural obstacles, 118 large and small rivers;

6.013km of the pipeline runs through 12 specifically built tunnels, active electrochemical protection has been implemented through 200 cathodic and 40 electric drainage installations and 3,500 protectors. Since 1991-1992 these are not operating.

Out of 1940km of the pipeline 19% is run for more than 30 years, 76% - 10-30 years, 5% for less than 10 years.

Old age of the pipelines, hard landscape and climate conditions special requirements towards their operation

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• Transported gas is being measured in 7 metering joints

• Tsiteli Khidi metering joint has a status of commercial metering joint

• On the Georgian-Russian border, on Russian side commercial meter is installed whilst controlling meter is on the Georgian side

• Today, actual load of gas-main pipelines is 21% of the capacity

Metering Joints

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From the Caspian Sea Shah Deniz gas pool natural gas is being transited to Turkey through South Caucasus pipeline. This runs parallel to Baku-Tbilisi-Ceihan reaching total length of 692 km with the diameter of 42 inches

After setting of the South Caucasus Pipeline into operation for the purpose of transit to Turkey, Georgia is being provided with option (5% of the transit volume) and additional gas (200-500 million m3 assigned by years)

Estimated capacity of the South-Caucasus pipeline is 16 billion cubic meters of gas. Transit to Turkey in first year (2007) amounted to 2 billion m3, four years since it should amount to 6,6 billion m3.

Year Natural Gas, millions m3

2008 400

2009 450

2010 550

2011 660

2012 830

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Option gas means the payment for the benefit of Georgia for the transit amounting to 2,5$ for each 1,000 m3 transited that approximately equals 5% of transited gas volume. Georgia is entitled to receive monetary payment or to receive partial compensations, part gas and part cash (50$ for each 1,000 m3

transited). All of the mentioned amounts increase by 2% annually. Therefore the price of the received gas is not dependent on the world market prices of gas.

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Natural Gas Distribution

• Kaztransgas-Tbilisi Ltd has purchased JSC Tbilgazi in 2006 and acquired from GNERC natural gas distribution license and started servicing Tbilisi consumers

Kaztransgas-Tbilisi Ltd.

Kaztransgaz-Tbilisi 2009 performance data:

• Total length of the pipelines – 2,547km• High pressure pipelines – 232km• Medium pressure pipelines – 843km• Low pressure pipelines – 1472km• 9 Gas regulation stations, 1066 gas regulation points and 2035 gas regulation installations• Number of consumers – 320,727• 311,102 household consumers (population)•151 industrial consumers•1 filling station•9473 other consumers (administrative, service, education and others)• Annual consumption – 380,6 million m3

•Losses – 27,6% (105 million m3)

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Investor – JSC Kaztransgaz paid $12 millions in purchase and restoration of gas system of Tbilisi and plans to invest 79 more pursuing restoration of the system.

In 2009 Kaztransgaz-Tbilisi Ltd failed to comply with the license condition – failing to pay for gas purchased from Georgian Oil and Gas Corporation in full and in timely manner thus jeopardizing uninterrapted delivery of gas to end consumers. In order to manage the situation, by order of the Commission special manager has been appointed to JSC Kaztrasngas. .

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Natural Gas Delivery

Delivery of natural gas is regulated and since 2005 no license has been issued.

Today main suppliers of natural gas on the market is JSC Ithera-Sakartvelo, International Power Corporation of Georgia Ltd, Socar Georgia Gas Ltd, Socar Gas Supply Ltd, GasExport Ltd, Kaztransgas-Tbilisi Ltd and Oil and Gas Corporation Ltd.

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Rules of Natural Gas Delivery and Consumption

In order to regulate relations between natural gas distribution licensees, suppliers and consumers and pursuing protectionof rights of the consumers, Commission has elaborated and adopted by virtue of #12 Resolution of the Commission of July 9, 2009 The Rules of Natural Gas Delivery and Consumption

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Settlement

Commission collects feedback from licensees on regular basisstudying their activities. Commission has elaborated annualreporting forms and on the public meeting of the Commission ofSeptember 24, 2009, the following resolutions have been passed:

#15/4 Concerning adoption of forms of reporting on compliancewith the license requirements of the natural gas distributionlicensee#15/5 Concerning adoption of forms of reporting on compliancewith the license requirements of the natural gas transportationlicensee#15/6 Concerning adoption of forms of reporting on compliancewith delivery-service requirements

Upon studying of annual reports appropriate resolution is beingprepared

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Harmonization of current standard acts and technical requirements with international standards has been launched.

In order to regulate current situation and service conditions of the natural gas sector, unified register forms of natural gas delivery and servicing have been elaborated, as well as recording registers for operational management and service centers.

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Ninotsminda Underground Gas Storage

One of the best ways to ensure establishment of the natural gas strategic reserve, trim seasonal disbalance of in and out flows of gas and improve operational management of gas flows is establishment of underground storages.

There are no underground gas storages in Georgia, currently projects of constructing some are being actively worked upon

Ninotsimnda has the most favorable geological structure fit for construction of underground gas storage. Ninotsimnda is located 40km east off Tbilisi, in the valley of the Iori river.

Ninotsimnda field contains both oil and gas. Ninotsminda vaulted deposit is 2km off Ninotsminda village and 3km off Sagarejo village.

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Ninotsminda deposit is located in mountainous landscape mainly covered in forest and criss-crossed by minor roads and walkways, with number of small river valleys. In 6 km south of the vaulted part of the deposit flows (from west to east) Iori river. Absolute altitudes of the landscape vary from 800 to 1200 meters, altitude increase from south to north. In the vaulted part of the structure altitude reaches 1100 meters above sea level.

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Industrial oil extraction started in Ninotsminda in 1979; gas cap has been worked since 1983. Till 2002 total of extracted oil amounted to 15 million tons. In 1997-2002 150 million m3 tons of gas have been produced.

Technical and economic data of prospective underground storage according to one of the scenarios:

Workable gas volume: 300 million m3

Productivity: 8,0 million m3/dayCost of the storage construction: €93 millionsCost of cushion gas: € 8,3 millionsCost of active gas: €6,9 millions

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Monitoring of Compliance with Licence Conditions

• By virtue of the law of Georgia Concerning Power and Natural Gas regulation of licensees includes their regular monitoring

• Licensees present the Commission with annual reports (both technical and financial). Based on these the Commission elaborates certain recommendations

• In controversial or suspicious cases monitoring is conducted on spot

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Prospects of Development of Georgian Natural Gas Sector:

• New technological installments

• Replacement of steel pipes with polyethylene pipes:

• Improvement of operational safety;

• Improvement of metering and consumer settlement systems;

• Broader monitoring of the licensee by the Commission

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Settlement of Disputes and Court Action

(Commission settles disputes between licensees or between consumers and licensees, assuming role of a mediator). The procedure of settlement of disputes is as follows:

1. Information about received complaint is being sent to the other party;

2. Upon reception of the other party’s answer the issue is being discussed on a working meeting with participation of both parties;

3. If needed – on spot investigation;4. In case consensus has been reached – the dispute is settled5. In case no consensus has been reached, the issue is to be

discussed on the meeting of the Commission, whereupon the Commission passes resolution mandatory for both parties.

6. Both parties have the right to file a complaint against Commission’s Resolution

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Following challenges are to be dealt with in relation to licensing and licensees:

• Collection of cash from the consumers in compliance with the rate and theft of gas

• Licensees often violate the rules of natural gas consumption adopted by the Commission, namely, when entering agreements with the consumers.

• Prospective licensees find it hard to present necessarry documentation proving property rights since the collection of such documentation is related to certain expenditures

• Sometimes licensees fail to deliver (in time or at all) information required by the Commission

• Problem of small licensees

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Thank you for your attention!