Gas OPEC and Russian-Algerian gas agreements


MOSCOW. March 14 (Igor Tomberg for RIA Novosti) - The visit by Russian President Vladimir Putin to Algeria in the first half of March 2006 was brief but very productive. The media front-paged Russia's readiness to write off Algerian debts in exchange for the purchase of arms. But the main success of the visit was achieved in energy cooperation.

First, the talks produced additional preferences - a monopoly right of Russian companies to oil production in the Sahara Desert. Algeria is Africa's third nation in oil reserves after Libya and Nigeria.

Specific agreements on energy cooperation will be reflected in the documents some time later. They include a memo of mutual understanding between LUKoil and the Algerian Sonatrak petrochemical company. Gasprom will also sigh a similar document with the latter.

The second, and most important point is that the results of the gas negotiations are very promising for Russia. Gazprom CEO Alexey Miller said that his company and Sonatrak would jointly produce gas and develop deposits in the north of Africa.

"We will help Algeria upgrade its production systems. They will share with us their priceless experience in gas liquefaction. In the 1960s Algeria became a pioneer in this field. Now Moscow is going to produce liquefied gas as well", stressed Miller. Algeria has already promised to take part in building infrastructure for the production of liquefied natural gas (LNG) in Russia, he added. Importantly, Russia and Algeria are going to work together in the European market. In theory, Algerians may receive a portion of Russian contracts for the supply of Europe with gas. But the sides prefer not to reveal the details of their agreements.

Algeria ranks seventh in the world in natural gas reserves and fourth in its exports - 60 billion cu m a year - after Russia, Canada, and Norway. Algeria exports its natural gas via pipelines to Italy, Spain, Portugal, Tunisia, and Slovenia. Its LNG goes to France, Spain, the U.S., Turkey, Belgium, Italy, Greece and South Korea.

The Russian President's visit has sealed last January's agreements, which give Gazprom access to deposits in Sahara. The Russian monopoly will fulfill some of its commitments by delivering Algerian gas to Spain.

The results of the President's blitz-visit to Algeria should be viewed in the context of Moscow's strategic goal to turn Russia into a global energy leader. The situation in the developing gas market is very important in this respect. The formation of the market inevitably generates a package of new mutual dependencies and geopolitical groups, production and cooperation chains and price cartels, which may be regional or even global. By entering world trade, natural gas is turning into a decisive factor of sustainable development.

An international forum of natural gas exporters, set up in 2001, is so far playing an advisory role, but it is becoming increasingly important in the world gas market. Russia is gaining more and more weight in it. It is possible that natural gas exporters will soon turn into a kind of gas OPEC, which will be indisputably led by Russia.

Experts have come up with this idea when Russia started coordinating different aspects of its gas policy (pricing, above all) with Kazakhstan and Turkmenistan. Gazprom is suspected of a striving to fulfill its external contractual commitments by using resources of neighbors. This maneuver will enable Russia to become a gas integrator on the entire post-Soviet space.

Russia will set prices at the future integrated market, concludes the report compiled by joint efforts of Stanford and Huston Universities in 2005. Its authors played several scenarios before arriving at this conclusion. It looks like these scenarios start materializing. In mid-November 2005, Kazakhstan and Russia signed an agreement on gas transit from Turkmenistan and Uzbekistan. De facto Gazprom has taken control over the gas resources of these three republics.

Russia, Kazakhstan, Turkmenistan, Uzbekistan, and Iran have tremendous reserves of gas and are actively developing its production and transportation infrastructure. Their cooperation and common political interests are a prerequisite for the formation of a major regional gas alliance. The absence of gas markets in India, Pakistan and China makes this idea even more appealing. Moreover, gas is expected to account for up to 70% of the increase in the demand for energy.

Growing tensions between Western gas consumers and Muslim gas producers in the Middle East will further encourage gas producers to set up the alliance. Today, we are witnessing the exacerbation of the conflict between the West and Iran. Or take another scenario - a riot of ethnic North Africans in France. In these conditions both Iran and Algeria would like to strengthen their positions as energy suppliers.

The Russian-Algerian gas agreement is a major step for this North African country towards joining the future cartel of gas exporters. Since Europe views it as Russia's major rival in its gas market, this step will make the future gas alliance supra-regional, and will consolidate the positions of all producers at the talks with consumers. Russia's G8 Presidency makes it an obvious leader in this still informal international forum. Analysts will see the Algerian visit of President Putin and its oil and gas results in the context of a would be gas OPEC under Russia's strong influence.

(The author has a doctorate degree in economics, and is a leading expert at the Institute of Economics of the Russian Academy of Sciences.)

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