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Journal number 1 ∘ Solomon PavliashviliZurab Garakanidze
The Impact of the Russia-Ukraine War on the EU Gas Spot Market


Ahead of the Russia-Ukraine war, global natural gas production in 2021 rose nearly 5 percent to a record 4.04 trillion cubic meters. In 2021, Russian natural gas exports were 202 billion cubic meters of pipeline gas and 39.6 billion cubic meters of liquefied natural gas (LNG). [Russia Struggles to Make Up for Europe's Gap in Natural Gas Exports. https://www.aa.com.tr/en/europe/russia-struggles-to-make-up-for-europes-gap-in-natural-gas- exports/2717651]. Because of the war in Ukraine, Russia stopped exporting essential volumes of natural gas to Europe, which used to account for 40 percent of the EU's supply, causing gas prices in Europe to rise. Georgia, with its strategic location on the eastern coast of the Black Sea, has the potential to create a liquefied natural gas (LNG) hub for transporting gas to European markets bypassing Russia – using existing port facilities in Anaklia, Poti, Batumi, Kulevi (owned by Sokar BST LLC);
Recent developments show the Russian government's interest in the idea of a Turkish gas hub. At the end of September 2022, two days after the explosion of the "North Stream 1 and 2" gas pipelines on the bottom of the Baltic Sea, Presidents R.-T. Erdogan and Vladimir Putin agreed to add two more new gas pipelines along the TurkStream pipeline, which is apparently a rival project to the EU's Southern Gas Corridor (SGC). The SGC goes through Azerbaijan, Georgia and Turkey to the Balkans, and the TurkStream pipeline from Russia through the Black Sea and Turkey enters in the same region of Europe, where the European SGC also goes – namely, South-Eastern Europe.
Natural gas has recently become one of the main types of fuel since the 70s of the last century. At the beginning of this century, about 88-90% of natural gas was supplied to consumers by pipelines, long-term economic contracts, and the rest by tankers, in the form of liquefied natural gas (LNG). Global LNG imports in 2021, according to the report of the International Group of LNG Importers (GIIGNL), increased by 4.5% compared to the previous year and reached 513.7 billion cubic meters (372.3 million tons). The Group's research notes that in 2021, LNG will already account for approximately 40% of the global gas market, with the rest coming from gas pipelines. In 2021, about 73% (375 billion cubic meters, or 271.8 million tons) of LNG was imported by Asian countries. In addition, only 36.6% of the world's LNG volume was sold on the spot market, i.e. in small lots – the rest was sold through long-term contracts, thereby neglecting the market mechanism of free price formation. Due to the Russia-Ukraine war, gas supplies to the EU through Gazprom pipelines have been almost completely cut off since the beginning of 2023, and Brussels is desperately looking for alternative routes.
For the first time, the idea of such an alternative in the form of the Trans-Caspian gas pipeline was put forward by then US President Bill Clinton in 1996. However, due to the uncertainty of the status of the Caspian Sea – the lack of delimitation of its shelf boundaries, the conflicting position of Azerbaijan, Iran and Turkmenistan, etc., this project was not implemented. Now Russia tries to use old Russia-Azrbaijan gas pipeline to connect his gas with EU SGC pipelines. Georgian government suggested in late 2022 to use his black sea Anaklia or Kulevi ports for constraction of LNG terminals and export the LNG tankers with Azeri (and Russian ?!) gas to the Balkan ports.

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Keywords: European Union, monopoly, spot market, "Gazprom", liquefied gas, energy crisis, oil prices, embargo, pipelines, hubs, Gas Corridor, LNG tankers, diversification.
JEL Codes: E44, G15, O13, P28