FGL Energy LLC - Energy Headlines

Representatives from Russia, Iran and Qatar met in Tehran on October 21 to discuss trilateral cooperation and the possibility of forming a cartel of gas-exporting countries, similar to the Organization of Petroleum Exporting Countries (OPEC).

Speaking to reporters, Iranian Oil Minister Gholamhussein Nozari said cooperation among the three makes sense, as "Iran, Russia, and Qatar have almost 60 percent of the world's total gas reserves. The three big holders of gas reserves are persistent and seriously interested in forming an organization of gas-exporting countries," Nozari said.

For gas consumers the idea is unwelcome, particularly after the dramatic rises in oil prices seen earlier this year, which many blamed, perhaps unfairly, on OPEC.

Charles Esser, an energy analyst at the Brussels-based International Crisis Group (ICG) who has written about the possibility of a gas OPEC, explained those European concerns. "In terms of reserves, Russia, Iran and Qatar are respectively one, two, and three by most assessments in terms of their natural gas reserves," Esser said. "The European Commission actually has actually come out and said...that energy supplies need to be sold in the free market. That was their response when the European Commission spokesman was asked about a gas OPEC. So obviously, and unsurprisingly, the European Commission does not like cartels. Why? Because cartels can tend to restrict supply and therefore increase prices for consumers."

Europeans already use a huge amount of gas -- more than 300 billion cubic meters annually -- and one of the main suppliers is Russia's gas giant Gazprom. Officials at Gazprom predicted just a few months ago that the price of gas for Europe in 2009 could reach $500 per 1,000 cubic meters, so naturally the thought that major gas-exporting countries might band together to coordinate prices is unpalatable to many in Europe.

But it is not as easy to form a gas cartel as it is to form an oil cartel, according to Esser. "Gas, unlike oil, is not sold on the world market, for the most part, with the exception of liquefied natural gas, LNG, which is still a very small share of the market," he said. The transportation of natural gas to consumers also differs greatly from transporting oil, as Esser notes.

"Most of the [gas] market is what is called 'stranded' markets, meaning markets that have to be addressed through certain land infrastructure -- that is, pipelines from certain suppliers with whom they have very long-term contracts, sometimes 25-year contracts." Esser said. That means little possibility of a globally adjusted gas supply.

Esser also points out that the three countries involved in the Tehran talks have different interests to address, and doubts that all parties are really interested in a global gas cartel. "I would hesitate to say whether a gas OPEC is really being intended here by all parties. Certainly the Iranians have said they would like to see something like a gas OPEC," he said.

A 'Gas Troika'

One key figure at the negotiations in Tehran, Gazprom head Aleksei Miller, spoke of a possible agreement on a "large gas troika" rather than a cartel. "Taking into consideration the common strategic interests of the three countries in the gas sector, the potential of the three countries in the gas industry, and the fact that Russia, Iran, and Qatar have three-fifths of the world's total gas reserves, the parties agreed to hold trilateral meetings on a regular basis," Miller said.

Esser says he is not surprised at the difference in language. Iran, despite its large reserves, is a very small exporter of gas, and Qatar might not be keen to irk its Western protectors, chiefly the United States, he said.

Ultimately such a cartel would depend on Russia, and Esser stressed that engaging in the same practices as OPEC would not be in the interests of Moscow, or those of Gazprom, since the company is opening up huge new gas fields in Siberia.

"When you look at Russian interests, are they really interested in cutting back their own gas supply intentionally?... In the end the power that OPEC has is to intentionally cut their own supply to increase price. I don't think that Russia is really interested in doing that," Esser said. "There's a sense that perhaps Russia is not making as much investment as Western companies would in a Western country and that in a sense restricts supply and increases price. But the idea that they would bring on gas fields and then suddenly, in collusion with some other countries, shut them off, I think is unlikely and probably not in their interest."

For all that, better coordination among gas-exporting states could have an effect on the world market. "A more likely result would be a kind of coordination to maybe restrict some competition," Esser said. "For example, if LNG deliveries to Europe were competing with Russia for market share one day, perhaps these countries might make agreements...that would restrict competition and keep market prices higher. I think that's perhaps more of the concern than a kind of gas OPEC that would globally raise and lower supply to affect price."

Russia is hosting a forum of gas-exporting countries on November 18 and has invited -- along with besides Iran and Qatar -- Algeria, Indonesia, Libya, Malaysia, Nigeria, the United Arab Emirates, Egypt, Trinidad and Tobago, and Venezuela to send representatives. Norway is also expected to send a representative as an observer.

Source: RADIO FREE EUROPE

Energy Headlines

Russia, Iran, and Qatar Consider Gas Cartel