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A new gas storage facility for Georgia

News from 2018-08-27 / KfW Development Bank

Contract signed during Chancellor Merkel’s visit to Georgia

Olaf Zymelka and David Tvalabeishvili sign a loan agreement
KfW Head of Division Olaf Zymelka and David Tvalabeishvili, CEO of the Georgian Oil and Gas Corporation, sign a loan agreement worth EUR 150 million for an underground gas storage facility attended by the Parliamentary State Secretary at the Federal Ministry of Economics and Energy, Thomas Bareiß, and the Georgian Deputy Finance Minister Nikoloz Gagua.

With support from Germany, the country’s first underground gas storage facility is being built in Georgia. During Chancellor Angela Merkel’s visit to Georgia on 23 August 2018, KfW signed the loan agreement for a promotional loan of EUR 150 million on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). The project partner is the state-owned Georgian Oil and Gas Corporation (GOGC). The new storage facility will significantly increase the country’s security of supply.

Georgia is the only country in the Black Sea region without the ability to store gas to date. The current system poses a supply risk, as Georgia’s gas supply is based exclusively on imports from neighbouring countries – 90 per cent from Azerbaijan, 10 per cent from Russia. The country is currently not in a position to compensate for any delivery shortfalls with its own reserves. This will change with the new gas storage facility, the construction of which is also required of the Georgian government under the EU Association Agreement.

Meets around 15 per cent of annual consumption

The underground gas storage facility is being built about 20 km southeast of the capital Tbilisi in an abandoned oil field with natural caverns. It will have storage capacity of 400 million cubic metres, which represents between 10 and 15 per cent of Georgia’s annual gas consumption. By comparison, Germany has more than 50 gas storage facilities, which can cover close to a third of its annual gas consumption.

The total investment amounts to between EUR 220 and 255 million and is to be financed by loans from KfW, the European Investment Bank (EIB) and funds from GOGC itself. The majority of the population will benefit from the measure as 80 per cent of Georgian households are connected to the gas network.

Better supply, more investment

The project supplements KfW’s decades of successful commitment on behalf of the German Federal Government in the Georgian energy sector. Its activities include financing for transmission lines to connect new hydropower plants to the grid and connect the Georgian grid to the Turkish grid. It is also helping Georgia to reform the energy sector and renovate public buildings to make them energy efficient.

The new gas storage facility is expected to go into operation at the beginning of 2021. Before construction work begins, GOGC will be given support to ensure the geological safety of the storage facility through test drilling and to determine the best possible design. "With the construction of the first underground gas storage facility, Georgia is significantly improving its energy supply and creating the conditions for investment and economic growth through increased energy security," commented Dr Joachim Nagel, member of KfW Group’s Executive Board.

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