Despite clamour in the trade and consumer press growing about a gas cartel, it’s frankly unlikely anytime soon. The idea has been mooted before, but was recently given credence and momentum by Alexey Miller, chairman of Russia’s Gazprom.
He said in October that Russia, Iran and Qatar would collaborate to form an OPEC-style gas cartel. The realisation would form a producer syndicate that alone controls over 60% of the world’s recoverable natural gas reserves, and was met with immediate opposition from European countries, which, faced with rapidly diminishing North Sea reserves, are increasingly dependent on imported gas.
Interestingly, the Russian Prime Minister, Vladimir Putin, seemed to address the concerns a few weeks later. “We know about the concerns and even fears expressed by some energy consumer countries,” Putin said after a meeting with Egyptian Prime Minister Ahmed Nazif. “There are absolutely no grounds for such fears. We are not establishing a cartel, we are not striking any cartel deals.”
It is always more likely that the seed of such an organisation would be planted, then given time to germinate until all the players are content with the way it looks before hitting the market.
However, there remain some fundamental reasons why Russia would not want to be a part of a gas cartel, which will all be examined in detail in the upcoming issue of Oil & Gas Middle East, and will be touched upon lightly here.
Firstly, Russian interest in stable trade with major European customers eclipses the benefits of participation in a “gas-OPEC.” Any collusion would have the effect of galvanising a more cohesive European consumer body, leaving Russia with gas but no customers at the end of its pipelines.
Secondly, Russia’s financial clout has been weakened as much, if not more, than its EU and US trading counterparts. The length of gas supply contracts extend into several decades in some cases. That guaranteed, secure revenue is needed to shore up foreign reserves and commit funding to the infrastructure needed by the gas distribution network in the future.
Finally (this list is not by any stretch exhaustive), oil is traded on a well developed, truly global spot market. This allows the product to be sold at any time, anywhere, to the highest bidder.
In the natural gas market there is no real equivalent. And if there was, the vastly more transportable LNG gas would be the mobile product which could get to market, and not pipeline gas which is Russia’s biggest asset.
The development of a coherent globalised spot market would play right into Qatar’s hands, where the liquefaction and export terminals are ahead of any other producer in the world. And for Russia to play second fiddle would just not do.
Find out more, and see both sides of the story in December’s Oil & Gas Middle East.
Daniel Canty is the editor of Oil & Gas Middle East.
