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Financial Times: Russia’s soothing words fail to calm fears over new cartel for natural gas

By Carola Hoyos in London
Published: February 9 2007 02:00 | Last updated: February 9 2007 02:00

Viktor Khristenko, Russian energy minister, this week dismissed as a “fantasy” the idea that Russia might form an Organisation of the Petroleum Exporting Countries-style cartel for natural gas with Iran, Algeria and other countries.

His thoughts echo those of Abdullah bin Hamad Al Attiyah, Qatar’s energy minister, and other leaders of gas-producing countries, who have tried to reassure European politicians and Nato analysts that there will be no gas-style Opec.

However, fears remain that Russia, Algeria and other gas producers are forging long-term agreements that could eventually affect the price of gas for European customers and access by international petroleum companies to two of the world’s most important gas- producing countries.

Earlier this month, Vladimir Putin, Russia’s president, caused alarm when he said that a gas Opec was an “interesting idea”, adding: “We will think about it.” He said that Russia, Iran and other big producers should not act as a price cartel, but should “co-ordinate our activities”.

Mr Khristenko said this week that widening contacts between gas producers and consumers served only one purpose: “strengthening energy security and lowering risks”.

What Russia and other producers are suggesting is a long-term effort to create a web of influence by sending national oil companies across each other’s borders to explore for and produce gas. Many national oil and gas companies want to grow and diversify by investing internationally to compete with global groups such as ExxonMobil and Royal Dutch Shell.

Developing each other’s fields would be a step in that direction, allowing them to keep the profits they would otherwise hand to the international groups that would be financing them, says Frank Harris, analyst at Wood Mackenzie, the consulting firm. National energy groups, and the governments controlling them, would also be able to influence how quickly their rivals brought on new gas – making it easier to ensure prices did not collapse in the long-term.

Algeria’s Sonatrach is already preparing to bid on gas exploration and production licences in Russia at a time when both countries are making it difficult for western companies to invest in their gas resources. Analysts say such plans make sense: Algeria is an expert in liquid natural gas and Russia’s Gazprom is experienced in piped gas. Together they supply 46 per cent of Europe’s total needs. But analysts also worry these kinds of agreements could slow investment. The International Energy Agency, the developed countries’ watchdog, warned recently of a “serious risk of under investment”, and has been especially concerned about Russia’s progress.

So far, the closest thing to a global alliance of gas producers is the Gas Exporting Countries Forum, which is struggling to stay relevant as ministers have become disillusioned and meetings have been cancelled.

Ironically, new laws enacted under the European Union’s energy liberalisation – allowing for the resale of gas by customers, while still impeding producers’ direct access to European markets – have helped bind producers together.

How much they co-operate in the long term will depend on what Brussels does next, as well as how seriously companies such as Gazprom believe co-operation with other national energy groups will help them become international heavyweights.

Copyright The Financial Times Limited 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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