Georgia’s Position in the Global Energy Game

A short interview with one of the former executives of the Chevron Corporation, Mr. Edward C. Chow regarding Georgia’s potential, its attractiveness for Europe, and Gazprom as an alternative.

According to the preliminary data from the first quarter of 2016, Georgia’s energy sector is back to being one of the top three most attractive sectors for foreign direct investment (FDI). The government of Georgia said that the temporary loss of this honorary position was due to two main reasons: faulty methodology (e.g. attributing the Shah Deniz project to the Transportation & Communications sector, instead of the energy sector where it belongs), and the expansion of internal investments, while the information concerning its trends are simply unavailable.

In the 21st century, when the most common words used with regard to the energy sector are ‘energy independence’ and ‘security’, FDI has special importance – this is how Mr. Edward C. Chow views these specific statistics. Mr. Chow, the former executive of the Chevron Corporation, is now an expert for the Center for Strategic & International Studies (CSIS). He specializes in oil and gas investment in emerging economies. Over the past two years, Mr. Chow has traveled to Georgia twice at the invitation of the Economic Policy Research Center (EPRC) to participate in international conferences, where his talking points focused on the energy sector, recent changes in the global energy landscape, and Georgia’s potential in the energy sphere. Somewhere in between his busy speaking schedule, Mr. Chow still found some time to talk to Forbes Georgia. We managed to conduct a quick interview with Mr. Chow right on the stage of the conference.

We have often heard that Georgia is one of the most attractive countries in the region in terms of energy. What does this attraction stem from?

The main reason is due to Georgia’s transit function, which is determined by its geopolitical location. However, we can view Georgia as an example for other countries in this region, as this is not just about the country’s successful reforms. The way these reforms were carried out and the implementation of their progress deserves special acknowledgement. For instance, this experience could be very beneficial for Ukraine, a country that is currently in desperate need of reforms in this sphere.

Do you think Georgia makes use of its energy potential in an effective manner?

I discovered one important trend at the conference: no one argues about the overall strategy. Even the harshest critics focus on the tactical approaches. For example, how can we achieve more results more efficiently and in less time? However, I did not hear any fundamental difference at this conference. One thing is for certain, Georgia’s energy policy is fully compatible with the western approach, and there are no apparent fundamental differences in this regard.

Couldn’t we argue that there was a fundamental difference in this policy approach when the government of Georgia was harshly criticized for its attempts to deepen its relations with Gazprom?

There is one thing that I would like to mention in this regard. In view of the diplomatic protocol, it was very strange that the Minister of Energy held negotiations with the head of the company. I don’t think that ministers in general should talk to the heads of companies. I simply do not understand why anyone should raise Aleksey Miller to the level of minister.

On the other hand, if the idea behind these negotiations was that the government wanted to find alternative sources of gas, and commercially more profitable proposals, well in that case I can understand this. It is quite possible that the government of Georgia was simply trying to reinforce its trading position with regard to SOCAR, their current supplier, which is perfectly acceptable.

Whether or not these negotiations were transparent enough or whether they could have been managed better, is naturally a separate issue, and you are well aware of the details yourself.

However, I do not see any problem with diversifying supply sources. Even if this had to do with Gazprom, Russia’s state machine, which left us without gas one cold winter?

That is exactly why I say that it would have been more acceptable if the negotiations were held between companies and everything remained within a commercial framework.

But wouldn’t that simply be self-deception? We all know who Aleksey Miller is, and his relation to Vladimir Putin. Is it possible to draw a line between business and politics in this particular case?

That is exactly what I am saying. I do not see why we should accept the fact that Miller is the face of Putin. I am not picking on Georgia in this particular case. However, to be honest with you, I cannot imagine, for instance, the president of Bulgaria meeting with Aleksey Miller. This is a trap that needs to be avoided. When the negotiations start at the ministerial level on one side and the executive of Gazprom on the other side, how do you raise these negotiations to a higher level?

However, if we look at the results of these negotiations, obviously the government’s approach was justified: Georgia did not buy additional gas from Gazprom, while SOCAR softened its terms. The government of Georgia managed to have an impact on SOCAR by displaying interest towards Russian gas. Therefore, I have no problem with this approach based on my extensive experience participating in commercial negotiations while I was working at the Chevron Corporation.

We began our conversation by saying that Georgia is an attractive country, especially for Europe, since dependency on Russian energy resources is more acute in this region. Why would Georgia still be attractive for Europe if Gazprom is represented in a greater capacity here?

That’s an interesting question. I haven’t looked at it that way. I believe that in this case, there will be two crucial factors that need to be taken into account: the proportion of Russian gas and the duration of the contract with Gazprom. For the past 20 years, Georgia proved to be a reliable transit country, and it remained so even when it was more dependent on Gazprom. This dependence has dramatically decreased in recent years, which is very good. However, in this case, increasing the gas supply from Gazprom in small doses would be less noticeable.

There have been a lot of discussions recently in regard to Georgia becoming a full member of the European Energy Community. Do you think this is necessary for Georgia, and will full membership serve as an additional mechanism to increase Georgia’s energy security?

I am not an expert in this field. However, it is logical to think that becoming a full member of the European Energy Community will increase investor trust, since they will know for sure that Georgia officially adheres to the internationally recognized rules. On the other hand, I believe that Georgia deserves additional compensation because of its geopolitical location. But if we go back to your main question on whether or not this will make Georgia safer, I do not see any direct connection.

Georgia will be more secure if it becomes more attractive via a liberalized market, and it will be more secure if the country has rates that reflect the reality of the market. Better usage of transit potential and more direct investments – these are the conditions that determine Georgia’s energy security. The more investors that are interested in Georgia who invest their capital in this country, the more secure you will be. This is because whoever your potential enemy might be, it will be more difficult for your enemy to go against the entire international community.

In your perspective, does Georgia have a reasonable chance of diversifying its energy resources without increasing dependency on Gazprom?

I would consider Iran and Turkmenistan as additional energy suppliers. Generally, I would negotiate with all possible parties so that Azerbaijan and SOCAR are not under the impression that they are the only players on the market. Nonetheless, I would like to emphasize once again that form matters. In other words, the way you manage the negotiation process and all the related symbolic messages are extremely important. It is very ill- advisable to cede politically important values in the pursuit of alternative sources of gas. 

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