11:35 GMT +327 March 2017
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    Will gas exporters unite in a cartel?

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    MOSCOW. (RIA Novosti economic commentator Mikhail Khmelev) - On April 9, Doha, the capital of Qatar, will host the Forum of Gas Exporting Countries.

    Only one development is expected from the event: players on the global gas market will try to reach an agreement on setting up an international alliance like the one that unites the majority of oil exporting countries.

    But even if gas producing countries manage to create an analogue of OPEC, it is unlikely to have as much influence on the gas market in the next few years as the oil cartel has.

    The phrase "gas OPEC" comes from a comment by the spiritual leader of Iran, Ayatollah Ali Khamenei. At a meeting with Igor Ivanov, the secretary of the Russian Security Council, in Tehran on January 29, he spoke of the possibility of setting up an organization to cooperate in the gas sector. "Our countries can set up an organization similar to OPEC," he said. "Russia and Iran control half of the world's natural gas reserves." Indeed, gas reserves in the Middle East amount to about 70 trillion cubic meters, and in Russia 48 trillion cu m, while the rest of the world has about 40 trillion cu m. But the Russian leadership has an ambivalent attitude toward this initiative.

    "We have not rejected the cartel proposal," said Russian President Vladimir Putin at a news conference after his visit to Qatar in February. "Whether we will set up the cartel and whether it is necessary is a subject for a separate discussion." Russian experts will attend the Gas Forum in Doha in April in order to decide whether to set up any alliances with gas producing countries, he said. But Economic Development and Trade Minister German Gref, when asked his opinion of the initiative, said that Russia would "consistently advocate the liberal model of trade in all energy resources." "The worst idea is a dictate, either on the part of producers or consumers," he said.

    Valery Yazev, chairman of the parliamentary committee for energy, transport and communications and head of the Russian Gas Society, supported the initiative, but not with the aim of gas producers to impose their prices on consumers, but for them to streamline the development of new fields. It would be useful for gas exporters to coordinate their shipment and pricing policies and to exchange new technologies, he said.

    The Doha forum will most probably produce another declaration of its members' intention to coordinate their efforts to develop the gas market, most experts believe. Nonetheless, even if a formal agreement on the setup of a cartel is signed, it will not have any effect. The parties have not yet agreed even on a basic framework for future agreements. There are no specific written proposals on the structure of the union.

    Still, many gas producing and exporting countries support the idea of setting up an analogue of OPEC. Among the project's proponents are Algerian President Abdelaziz Bouteflika, Venezuelan Energy and Petroleum Minister Rafael Ramirez and the small island state of Trinidad and Tobago, a serious player on the gas market, which has not taken part in any gas forums until this year. Qatar is also willing to discuss the issue. Turkmenistan and Kazakhstan have not expressed their views on the proposal. The idea is vehemently opposed, however, by Norway, Canada and the Netherlands, which account for about half of the world's gas exports (230 billion cu m a year).

    Apart from the lack of agreement between gas exporting countries, there are no economic reasons for setting up a gas cartel. In order for it to effectively influence prices in the gas sector, there must be a free gas market. Unlike the oil market, which has a high share of short-term contracts, gas trade is mainly based on long-term contracts. The share of gas spot contracts is small and mainly concerns liquefied natural gas (LNG) deliveries. How is it possible to speak of regulating gas prices if all gas is sold to consumers at the production stage several years in advance?

    Today, both gas consumers and producers are tied to gas pipelines. Only the rapid development of new fields and construction of new pipelines can destabilize the situation on such a fixed market. Moreover, gas prices are linked to oil prices, which means that they cannot be controlled by the gas community and depend on the moves of OPEC.

    Gradually, however, a factor is coming to the fore that could liberate both consumers and producers from their dependence on pipelines. I am referring to the development of LNG technologies. They allow gas to be sold to a consumer in virtually any part of the world, while the amount of supply is limited only by the capacities of LNG plants. PricewaterhouseCoopers forecasts that LNG supplies will grow from the current 27% of total gas sales to 40% within a few years. Short-term gas contracts will become as frequent as oil spot and futures contracts. With their assistance, the market will determine gas prices according to real supply and demand. This is why Russia has not completely rejected the idea of a gas alliance.

    Russia has drafted its own proposals for a new format of closer cooperation in gas production and exports for the Doha forum, which will be attended by Iran, Qatar, Venezuela and Algeria. Notably, it intends to initiate a discussion about new possibilities in the global energy dialogue and ways to improve the market's reliability and predictability. So the setup of a gas cartel will have to be postponed - for another few years.

    The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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