Exporters meet to create 'gas OPEC'

By Isabel Gorst and Ed Crooks
Financial Times, London
Tuesday, December 23, 2008

http://www.ft.com/cms/s/0/e11a283a-d0f1-11dd-8cc3-000077b07658.html

Energy ministers from 12 of the world's leading exporters of natural gas met in Moscow on Tuesday to create a producers' group that consumers fear could develop into an Opec-style cartel.

Vladimir Putin, the Russian prime minister, who chaired the meeting, warned that the era of "cheap gas" was coming to an end, and said members of the group would co-operate to make the gas market "predictable."

The move comes at a time of heightened concerns over Russian gas supplies because of Moscow's dispute with Ukraine over pricing and unpaid debts.

Ukraine, which is the transit country for four-fifths of the the European Union's imports of Russian gas, warned on Tuesday that a cut in Russian supplies could affect customers in the EU.

A gas producers' group could not operate in the same way as Opec, the oil cartel, which can change its members' production from month to month in an attempt to influence the market. This is because gas is generally sold under long-term contracts, which are very difficult to break or amend.

The proposed new group, however, a formal version of the Gas Exporting Countries'’ Forum, which has existed since 2001, could try to drive up the price of gas over the medium term.

The emergence of a spot market for cargoes of liquefied natural gas, which can be sold wherever prices are highest, also creates potential for short-term market management, although those cargoes are only a small proportion of total gas sales, and likely to remain so.

The gas producers' group will for the first time have a secretariat, to be based in Qatar. Russia had hoped the organisation would be headquartered in St Petersburg.

Russia, the world's biggest gas producer and the driving force behind the group, said it would not be a cartel, but would work to enhance energy security at a time when the gas market is becoming increasingly globalised.

However, members of the forum, including Russia and Qatar, are pushing for higher world gas prices to reflect what they see as its value as a relatively clean source of energy and potential as a transport fuel.

Gholam-Hossein Nozari, Iran's oil minister, said the group should prevent "unnecessary and harmful competition" between producers.

Jonathan Stern of the Oxford Institute for Energy Studies said that in spite of Mr Putin's comments, the era of cheap gas was returning because of the fall in the price of oil, which typically sets the price of gas in long-term contracts.

If oil stays at $40 per barrel, he said, the price of gas in Europe could be about $250 per thousand cubic metres by the third quarter of next year, down from over $500 in the fourth quarter of 2008.

He added that this might spur co-operation between producers.

"I have always been a sceptic about 'gas Opec,' partly because cartels only form when prices are weak. But suddenly with oil and gas at these prices, a cartel does become more of a threat," he said.

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