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Financial Times: Cartel unlikely to be in pipeline for gas-producing states

By Carola Hoyos in London
Published: April 9 2007 03:00 | Last updated: April 9 2007 03:00

Doha’s Ritz Hotel is rather different from the discreet club in the suburbs of Cairo where Venezuela, Saudi Arabia, Kuwait and Iran in 1959 signed the gentlemen’s agreement that would later create the Organisation of the Petroleum Exporting Countries oil cartel. But European governments will be watching nervously to see if energy ministers of the big natural gas exporting countries come up with similar plans when they meet there today.

Andris Piebalgs, the European Union’s energy commissioner, recently warned: “I can’t exclude at this stage that there [will] be moves to establish a gas cartel,” though he added that Algeria and Russia, which together supply 44 per cent of Europe’s gas, had told him they agreed only to co-operate on “issues of technological challenges, research activities, perhaps some swaps”.

The mission of the Gas Exporting Countries’ Forum (GECF) – which is to “identify and promote measures and processes necessary to ensure that member countries derive the most value from their gas resources, taking into consideration the nature of gas as a non-renewable source of energy” – clearly leaves open the option of forming a cartel.

The GECF includes large gas exporters such as Russia, Qatar, Algeria and Nigeria, and potential future net exporters such as Venezuela and Iran.

Vladimir Putin, Russia’s president, and his Iranian and Venezuelan counterparts have all recently mooted the idea of a cartel.

Frank Harris, gas analyst at Wood Mackenzie, said: “Venezuela and Iran seem to be the most vocal members, but also the two that contribute the least. In contrast, Qatar [one of the world’s fastest growing liquefied natural gas exporters] is extremely sensible and commercial.”

Russia has backtracked. On Friday Victor Khristenko, the energy minister, said: “The fact that a cartel agreement on priced formation for gas will not be signed in Doha is clear.”

However, Rafael Ramirez, Venezuela’s energy minister, said yesterday that a cartel would be a “very good idea. Gas is the second source of energy in the world.”

Influencing gas prices is far more difficult than moving oil prices as Opec does. This is mainly because gas is traded in long-term contracts, with its price linked to that of oil. Besides, none of the gas exporters is in a position or willing toplay Saudi Arabia’s role asa swing producer, investing heavily in infrastructure only to leave it fallow when prices are low.

The US, the world’s largest gas consumer, gets the majority of its supply domestically and from Canada.

Thierry Bros, analyst at IFP, the Paris-based research centre, pointed out: “The gas exports of the GECF represent only 14 per cent of worldwide consumption, while Opec represents more than 30 per cent of oil consumption.

“Gas being a regional market, GECF will not have a significant impact on the US market, which still produces 83 per cent of its gas domestically and imports another 13 per cent from Canada. Europe, on the other hand, is already dependent on Russia and Algeria for 44 per cent of its gas consumption.”

So if a cartel is unlikely, the question remains: what will the energy ministers be doing in Doha?

For Russia, which never joined Opec, the cartel idea was never serious, analysts said. Instead, Doha presents the chance for Moscow to expand its international political influence, especially in North Africa and the Middle East, as well as the chance to begin to get a handle on the liquefied natural gas market, which is beginning to compete with its pipeline gas.

For Iran and Venezuela, whose governments are at loggerheads with Washington, Doha offers a similar political opportunity as well as a platform from which to brandish one of the only international diplomatic weapons they have: their energy resources.

Mr Harris believes topics of conversation in Qatar will be more along the lines of: how do we not upset the apple cart by investing too quickly in too much capacity? How should long-term contracts be structured? And how real are threats that gas may be crowded out by nuclear power? But he adds there is one threat people are missing: the eventual fallout that companies such as BG, Repsol and Royal Dutch Shell will suffer if the gas-exporting countries decide their national energy groups can help each other develop reserves, reducing the need for the help of international oil companies.

The result may not be as drastic as the one that followed the meeting in Egypt almost 50 years ago, but it means consuming countries will be wise to keep their eyes on the Ritz.

Copyright The Financial Times Limited 2007

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