15:43 GMT +320 September 2017

    Will there be a gas OPEC?

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    MOSCOW. (Igor Tomberg for RIA Novosti) - The Gas Exporting Countries Forum (GECF) has just finished its work in Qatar's capital Doha. Russia was represented by a high-ranking delegation headed by Minister of Industry and Energy Viktor Khristenko and Gazprom CEO Alexander Miller.

    Participants in the forum discussed coordination of gas production and supplies. The main intrigue was the prospect of forming an OPEC-style gas cartel.

    The very first day of the forum made it clear that active work on setting up a gas cartel was underway although no documents to this effect were going to be signed. After the forum, Khristenko said that participants in the meeting have decided to establish a high-profile group to deal with gas prices. Although gas exporters have not yet gone for a cartel, their agreement to control and coordinate price formation is a step towards OPEC's gas counterpart.

    The GECF nations will take their next step to the cartel on Russian territory. They will meet for their seventh forum in Moscow in 2008. Khristenko said the forum made this decision at Russia's proposal. He noted that Russia will coordinate a high-profile price-forming group. This means that Russia will lead gas exporters to unity, and this is only fair considering that it can add geopolitical weight to the future alliance.

    The idea of a gas OPEC has dominated the politicized debates on global energy problems, all the more so after President Vladimir Putin said during his first visit to Qatar in February 2007: "Whether we need it and whether we will build it, is a separate subject, but gas producers must coordinate their actions." Later on, the leaders of all major gas producers that possess 70% of its world reserves supported this idea in different forms.

    Response of consumers, primarily the United States and Western Europe is predictably negative. In early April, the House of the U.S. Congress asked Secretary of State Condoleezza Rice. "The creation of this cartel would pose a major and long-term threat to the world's energy supply," said Ros-Lehtinen, Ranking Republican on the House Foreign Affairs Committee. "We must vigorously oppose the establishment of this global extortion and racket."

    Europe is particularly worried about the plan to set up a cartel. This is only natural - in the estimate of leading research centers, gas consumption will be going up in long-term perspective. The latest forecasts predict that by 2020, gas consumption in Europe may approximate 640 billion cubic meters. At the same time, there is an obvious trend to reduce domestic production, which will make Europe even more dependent on imports. In the cautious estimate of E.ON Ruhrgas that has studied then already signed contracts, by 2020 the European Union may be short of 140 billion cubic meters of gas.

    But it would not be entirely correct to reduce the whole problem to higher gas prices. Many European and other experts deny the link between the would-be union of gas suppliers and price hikes. First, most gas supplies in the world are carried out under long-term contracts where prices on gas are tied to oil quotations. Second, an increase in gas prices may hit back the exporters because many consumers will find it cheaper to switch to coal or renewable energy sources, or develop nuclear energy.

    Paradoxically as it may seem, but Brussels also needs a threat like a gas OPEC - it is a good argument to strengthen the EU united front in gas dialogue with Russia. Khristenko noted that "the reasons for concern of the gas consumers and their sharp criticism should be sought within these countries." In his opinion, "it is very easy to present gas exporters as a monster and create an image of a global threat in order to distract attention from one's own problems. This is a routine political trick."

    Russia that actually guarantees the advance of gas exporters to unity needs a gas OPEC as an instrument of establishing rules of a game that would meet the interests of both producers and consumers. The world's leader in gas production, exports and reserves, Moscow wants to have an opportunity to influence the policy of all major gas producers and, in perspective, transit countries rather than the attributes of a formal institution.

    Indicatively, the louder the appeals for a gas OPEC, the fewer demands that Russia should ratify the Energy Charter. The tactic of sidetracking attention works. For Moscow, entry into a coordination cartel is a much less binding step than ratification of the Charter with all of its indigestible protocols. If the leading gas exporters reach some agreements of principle, the rules of the game will undergo a dramatic change.

    Strategically, it is important for Russia not to overdo with the talk about a gas cartel. The emergence of an influential union of gas producers may seriously upset the balance of forces and interests, and become a reason for major conflicts and confrontation between energy producers and consumers.

    It is quite obvious that Iran and Venezuela that do not feature prominently in the gas market were trying to draw Moscow into unnecessary political games. Russia resisted these efforts and continued active contacts with Algeria and Qatar at the forum. Russian gas producers need to coordinate actions with these leading gas suppliers.

    Experts agree that concerted policy will help to untie gas prices from oil quotations. All producers and exporters of gas have a stake in this because if they succeed, they will be able to conduct their own price policy without looking at the situation in the oil market.

    An alliance of gas exporters will allow them to cooperate on an equal footing with the consumer cartel represented by the International Energy Agency. However, to guarantee energy security in full measure, producers will have to include transit countries in the cartel, because they can keep supplies from getting to consumers.

    To sum up, the formation of a cartel has been postponed. But the idea is alive and its major aspect - gas price - is being translated into reality. This is an important step toward stronger unity of competing gas producers.

    Igor Tomberg, Ph.D. (economics), is senior research fellow with the Center for Energy Studies at the Institute of World Economy and International Relations, Russian Academy of Sciences.

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

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