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Gas OPEC: An idea going nowhere fast Russia, Iran, Qatar form technical committee to discuss gas policy; long-term LNG sales contracts obstacle to powerful cartel Gary Park For Petroleum News
Russia, Iran and Qatar, holding a combined 60 percent of the world’s natural gas, are cooperating on “all levels” to establish a “Gas OPEC” made up of global exporters — an initiative that, in the view of many analysts, has little hope of success because gas has yet to become a worldwide commodity.
They have struck a deal to establish a technical committee and to hold up to four meetings a year to discuss gas policy, Russia’s Gazprom, the world’s largest gas company, said in a statement Oct. 21.
Gazprom Chief Executive Officer Alexei Miller said the “big gas troika” would discuss the “most important and mutually interesting issues of gas market development.”
He said the cooperation would cover exploration, gas processing, transportation and sale of gas in an effort to “create a fair market for producers and consumers.”
Miller said the three-nation club planned to invite participation from other countries, including gas consumers, but gave no further details on who might be involved.
It is expected the so-called Gas Exporting Countries Forum or GECF would include Malaysia, Nigeria, the United Arab Emirates, Algeria, Bolivia, Brunei, Venezuela, Egypt, Indonesia, Libya, Oman, Trinidad and Tobago and Equatorial Guinea, but exclude North America.
Long-term gas sales an issue Algeria has argued in the past that creating an OPEC-style cartel for gas is a challenge given that most gas sales are bound by long-term contracts and lack the flexibility of the oil market.
Even senior Russian government and Gazprom officials have previously said a gas version of OPEC is not feasible, with one describing the idea as “childish.”
Alexander Medvedev, deputy head of Gazprom, said last spring that even if GECF became a formal organization it could not exert the same powers as OPEC “because of obligations under long-term contracts.”
Iran is only a small exporter of gas and not a relevant player in the LNG world, but has failed to attract western-based countries to develop its gas resources because of unease over Iran’s nuclear program.
Qatar is the biggest global source of LNG and wants to expand that market share by breaking the price link to crude.
It has no problems raising funds and is capable of pursuing projects independently, raising questions about why it would even be interested in a Gas OPEC, said London-based Middle East analyst Samuel Ciszuk.
Russia hasn’t joined OPEC Russia has never shown any desire to join OPEC, preferring to act alone, with about 95 percent of its current exports destined for Western Europe, which is already a matter of concern to consuming countries who would view a gas cartel as fueling their worries about security of supply.
Chris Theal, managing director of research at Tristone Capital, told the Calgary Herald that LNG projects are tied to 20-year contracts, without which there would be no financing.
He said there is a structural aspect to LNG markets that doesn’t exist with crude oil, limiting the ability of a natural gas consortium to act like OPEC.
The best gas exporters can hope for is to create a global market with regional elements, Bob Skinner, former director of the Oxford Energy Institute in England, wrote in a recent article.
“Continued growth in LNG demand, coupled with a willingness for many emerging players to pay crude oil equivalent prices, we anticipate that markets outside the U.S. will absorb 80 to 85 percent of undedicated supply in 2009 and 2010,” he said.
Currently Japan, South Korea and Spain claim about half of the 25 billion cubic feet of LNG produced every day, of which only 1 bcf per day is delivered to North America, largely because of the success in developing shale plays.
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