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The Daily Yomiuri (Osaka, Japan): Govt wary over Iran-Russia plan for natural gas cartel

Hiroshi Ikematsu Yomiuri Shimbun Staff Writer
Monday, 9 April 2007

As the world’s largest importer of natural gas, Japan is keeping a cautious eye on moves by major natural gas-producing countries to create a cartel similar to the Organization of Petroleum Exporting Countries.

The Gas Exporting Countries Forum (GECF) is expected to discuss a plan to launch such a body during a meeting of countries concerned that kicks off in Doha on Monday.

Russia and Iran, the two largest natural gas producers, have taken the lead in establishing the cartel that, if realized, would account for more than 60 percent of the world’s natural gas production.

The proposed cartel is aimed at strengthening cooperation among natural gas producing countries amid a worldwide rise in demand, and increasing their influence in determining supply and prices.

In January, Iran’s Supreme Leader Ayatollah Ali Khamenei told visiting Russian Defense Minister Sergei Ivanov in Tehran that the two countries should take the initiative in establishing a cooperative similar to OPEC, a suggestion Russian President Vladimir Putin reportedly showed a keen interest in.

Observers suggest the cartel would allow Russia to enhance its international standing as a key energy supplier while countering the growing perception in Europe that Russia is a threat to security. Iran, for its part, hopes to be able to better resist U.S. pressure.

The backing of the two leading gas producers is considered key to bringing the plan to fruition and the proposal has been given a further boost through an endorsement by Algeria, the world’s eighth-largest gas producer. Qatar, the third-largest producer, also agreed in February to discuss the plan at the GECF.

However, Indonesia and Australia, both major gas exporters to Japan, have not indicated any interest in the plan.

Details of the plan are not yet clear, but analysts believe that an agreement will result in closer coordination among gas producing countries based on the GECF, which was established in 2003 to facilitate information exchange among gas-producing countries.

The proposed cartel has been viewed with some concern by the Japanese government as it could affect gas supplies to Japan and keep the price high, thereby undermining the country’s energy security.

The move is particularly troubling for the government as natural gas has been promoted here for use in thermal power plants because it is less damaging to the environment than oil, and prices tend to be more stable. Utility gas also is being switched to natural gas.

With the use of natural gas expected to rise, Japan will start importing liquefied natural gas from Russia’s Sakhalin-2 field in 2008, and has pressed Russia to export natural gas from its Sakhalin-1 field, from which China has concluded a provisional contract to begin imports.

On learning of the drive to establish a cartel, the Economy, Trade and Industry Ministry sent a ranking official to Qatar in February to convey the government’s concerns about the plan.

Some analysts also are worried the proposal will encourage resource-led nationalism and adversely affect negotiations on prices and the acquisition of concession rights.

Akira Ishii, chief economist at the Japan Oil, Gas and Metals National Corporation, said: “OPEC was a weak organization when it was established in 1960, but it showed its muscle in the 1970s. If the gas cartel was established it would, in the long run, become a destabilizing factor on the world’s energy industry.”

However, despite the apparent progress over the creation of a cartel, many believe a final, effective deal will be difficult to conclude.

One reason is that natural gas transactions are conducted mainly as bilateral, long-term contracts. This is different to oil, which is traded on the market, and makes it more difficult to control production and prices through a cartel.

Moreover, natural gas producing countries are scattered across the globe, unlike OPEC member countries that are clustered in the Middle East, thus hampering a more coordinated approach. In addition, gas-producing countries have more diverse strategic interests, and some are less interested in forming a cartel out of concern over possible opposition from Japan, Europe and the United States.

This view is reflected in a report by the Russian news agency Novosti, which said members of the Russian parliament shared the view that an alliance of gas-producing countries would benefit Russia, but were concerned it could also be seen as an outright challenge to the West.

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