Gas Exporting Countries Forum: A Cartel or a Contest?
Very few people noticed at all a ministerial meeting of the Gas Exporting Countries Forum in Tehran last week. The association, formed in 2001 by eleven governments, sounded like a powerful cartel: after all, its members control over 70% of the world’s natural gas reserves, 38% of gas pipeline trade and 85% of LNG production. Still, the impact of the impressivesounding forum on the global market and on observers’ minds is exactly zero.
The organization of the gas producers was conceived by Russia and Iran, which command together 39% of conventional gas reserves on the globe. In May 2006 Deputy Chairman of Gazprom Alexander Medvedev declared Moscow was determined to make it ‘an alliance of gas suppliers that will be more influential than OPEC’ if Russia did not get its way in energy negotiations with Europe. And the Iranians did not hide they wanted the intergovernmental association to help them break out of political isolation.
Russia began with an attempt to set up a regional alliance of gas producers with Central Asian countries and Azerbaijan under Moscow’s aegis—and present a unified position at the forum, but former Soviet Republics declined the umbrella offer. Only Kazakhstan tentatively agreed to become a non-voting observer.
The forum is a cartel only in the eyes of its Russian and Iranian promoters. Russia’s former Minister of Energy Sergey Shmatko announced in December 2009, somewhat prematurely: ‘Today we can speak about gas OPEC as a fully-fledged international organization.’
The members had no chances to reach coordination on the gas market, or at least to achieve understanding of the need to act in a concerted manner. Gazprom, for example, wanted suppliers of LNG to stop competing with Russian piped gas in Europe, but neither Qatar nor anyone else was prepared to heed the pleas. In the competition between pipelines and LNG terminals the pipes are losing because consumers increasingly prefer flexibility and lower prices of LNG and spot deals to pricey long-term contracts which are a sine qua non condition for huge pipeline projects.
Gazprom’s leverage in the fight for a gas cartel is getting weaker as the Russian monopoly sees its gas contracts competing with its own gas deliveries. The Nord Stream pipeline in the Baltic Sea carries two types of the same commodity: Gazprom supplies some of this gas on termed contracts and some, at much lower prices, to its subsidiaries that offer spot deals.
In addition, such Russian projects as Yamal LNG or Sakhalin LNG are getting ready to compete with Gazprom internationally, making the idea of a gas cartel absolutely irrelevant.
Mikhail Krutikhin
Published with the kind permission of RusEnergy. Mikhail Krutikhin is with RusEnergy, an independent privately-run company established in 2000 by a group of Russian experts with a long experience in consulting and publishing business. Based in Moscow, it specializes in monitoring, analysis and consulting on oil and gas industry of Russia, Central Asia, Azerbaijan and Ukraine.
RusEnergy is a Natural Gas Europe Media Partner