23:59 GMT +320 January 2020
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    "Gas OPEC": is it a good idea?

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    MOSCOW. (Oleg Mityayev, RIA Novosti economic commentator) - Russia, Iran and Qatar, the three nations accounting for over 60% of global natural gas reserves, agreed to set up a "gas OPEC," on October 21 in Tehran, Iranian Oil Minister Gholam Hossein Nozari said.

    The three largest gas exporters want prices up, given the recent dramatic decline after the summer peak.

    Unfortunately, they have no power to change that now, as gas prices are regulated by the oil and petrochemicals markets since there is no such thing as an independent gas market.

    The high-profile statement by Nozari was followed by amendments. The alliance established in Iran's capital is in fact a "big gas troika." Its technical council will smooth out all unsolved issues within a week.

    The OPEC-style gas cartel will be finalized on November 18 in Moscow which must mean the group's charter will be adopted, a document which has been in the works for two years, ever since Iran initiated the idea.

    In fact, gas producing nations have had a discussion site since 2001, the Gas Exporting Countries Forum (GECF) comprising 16 member states. But it has no charter, its decisions are not binding on its members and it is no more than a discussion club.

    Adopting a single charter has been the long-standing stumbling block for a "gas OPEC." Iran wants the gas cartel to be modeled after the original OPEC, setting quotas for gas production thus pushing prices up while further damaging the U.S. economy.

    Moscow, in turn, is trying to avoid aggressive policies suggesting that the new organization should manage joint gas projects and gas transportation issues.

    The latter is especially important for Russia and its gas export monopoly, Gazprom, whose CEO Alexei Miller represented Russia at the Tehran meeting. It is crucial for Russia that Central Asian gas go through Russia on the way to Europe rather than bypass it via the Caspian seabed or go through its sly ally, Iran.

    Alongside these geopolitical predicaments, there are other practical issues for the proposed cartel to grapple with. Gazprom's gas supplies to Europe have been contracted for the next one to three decades. Iran's gas industry is so disorganized that, despite its huge reserves, the country has to export Turkmen gas under some of its export projects. Turkmenistan, for its part, has shown a rather cool attitude toward the gas OPEC idea.

    Qatar is a new player on the global gas market. Most of its projects are still in the works and involve LNG deliveries also to Europe, and again, under long-term contracts. If it tries to limit those deliveries, its niche will be immediately seized by rivals - Libya, Algeria and others.

    It follows from the above that there is no global gas market; there isn't a European gas market either. There are no "global" gas prices - they are set individually for each contract (usually a long-term).

    As a result, the potential gas cartel cannot influence gas prices through restrictive quotas. By restricting exports, gas-producing countries would only harm themselves by cutting their own incomes.

    By a strange irony of fate, gas prices in Europe are based on the market value of crude oil and petrochemicals, which gas producers have no power over.

    The disgruntled attitude of the three countries richest in the commodity is easy to understand. Oil prices have plummeted to half of what they were during the summer peak, and natural gas followed suit. Mr Miller and his counterparts are getting desperate because they cannot influence the process.

    However, the very idea of establishing some sort of gas cartel is bound to raise concerns with European consumers, further complicating Gazprom's investments in Europe, as if European partners weren't already wary of dealing with the Russian monopoly.

    The Russian government must certainly realize that "gas OPEC" is a harmful idea. Energy Minister Sergei Shmatko said earlier this month that the wording was inappropriate because Russia has no intention of regulating gas prices or production levels.

    Still, there is hope that the downslide of hydrocarbons pricing will be curbed as the original OPEC will meet in Vienna on October 24. OPEC is in a position to cut oil production drastically, and will do so to raise oil prices which will, in turn, take gas with it.

    Russia is not an OPEC member, but has an observer status with the group, which is probably a good thing.

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

    The views and opinions expressed in the article do not necessarily reflect those of Sputnik.

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