Sunday, December 28, 2008

Natural Gas OPEC Dream of Tehran

The Seventh Ministerial Meeting of the Gas Exporting Countries Forum (GECF) adopted a charter with an agreement reached to set up an executive office and a Doha-based secretariat. Although the Russian energy minister said after the meeting that a “new international organization” had come into being, Russia media, however, remained unoptimistic for the future prospects of GECF.

Founded in Tehran in 2001, the now-15 member GECF groups Russia, the biggest natural gas producer on earth, Iran, Qatar, Libya, Nigeria, Venezuela and other leading gas producing nations, which account for 70 percent of the world’s gas reserves. On January 29, 2007, Iran’s supreme leader Ayatollah Ali Khamenei publicly proposed for the first time the formation of a gas-export cartel to the visiting Igor Ivan, Secretary of Russia’s Security Council, and Vladimir Putin, the Russian president then, responded to it with an immediate endorsement.

On October 21 this year, Russia, Iran and Qatar held a meeting in Tehran, which touched off speculations that they intended to form a gas cartel in a bid to control international gas prices, but the Russia side gave a prompt denial.

In order to avert worries of natural gas producers, Russia has all along been unwilling to place “Gas OPEC” on a par with (Oil) OPEC. But the Russia side claims that the natural gas exporting countries forum would not be a cartel with the characteristics of engrossing the market. The charter adopted at the forum does not specify any obligations of its member countries with regard to quotas for exploration and price consultations, but those present at the forum discussed the issue on pricing mechanism for gas.

Russia, which has so far undoubtedly played a crucial, vital role in the development process of GECF, actively spurs the development of GECF primarily for ensuring its own economic interests since energy export is one of its major pillars for boosting economy. With a drastic decline in oil prices amid the deteriorating global financial crisis, Russia, as a big crude oil and gas exporter, hopes to stabilize natural gas prices and guarantee the steady operation of its domestic economy. At the GECF meeting, Prime Minister Vladimir Putin warned that the era of cheap natural gas was ending because of multi-billion dollar investments needed to develop the industry.

In face of an emerging gas cartel, or a gas OPEC, some countries, and especially European natural gas consuming nations, have expressed their concerns. To date, 70 percent of the natural gas production in Russia is exported to Europe, accounting for 40 percent of the continent’s natural gas consumption. So, European countries are indeed highly dependent on Russian energy and Russian gas in particular, and they regard it as Russia’s trump or “master card”. Consequently, a vital topic now lying before them is how to gradually lessen their dependence on Russian energy supplies.

Nevertheless, industry insiders acknowledge that natural gas, unlike crude oil, has to be pipelined and consumed instantly, and so it is difficult to store it to effect interference with prices. In fact, most natural gas deals are often irrevocable, long-term fixed price contracts signed between buyers and sellers. GECF member countries may go in for a wide-ranging cooperation in the gas extraction and liquefying process, but they are unlikely to form an OPEC-style pricing alliance.

As a matter of fact, GECF is rift with internal disparities at the present phase of development, according to an in-depth analysis of Russia’s “Independence” newspaper, Nezavisimaya Gazeta. For instance, it further explains, Russia hopes to base the GECF Secretariat in St. Petersburg on its territory, but the voting at the forum would ultimately seat it in Qatari capital city of Doha.

In a short run, GECF can possibly do something in the use of technologies, such as doing market surveys or reducing frictions among natural gas exporting countries, and it is expected to play a real, substantial role a decade later. At present, owing to the linkage between global gas prices and oil prices, however, natural gas markets have been seriously affected at a time when global financial crisis is slumping oil prices, and this precisely poses a challenge to GECF as well.

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