CONSTRUCTIVE DIALOG OR GEOPOLITICAL STAND
Through the development of free gas market, evolution of LNG-related projects and GTL technologies (natural gas conversion into liquid hydrocarbons) producers and exporters are growing stronger in joining their efforts to create commercially attractive and sustainable conditions for their new designs. Up to most recent time, lack of means for handling natural gas prices nullified all efforts of large producers, and this, in turn, affected the status of gas production industry designs, leaving a consumer tempted to seize the control over imported stock prices in its markets. Overall such situations affect the investment attractiveness of almost all current gas projects, and finally lead to deficiency of hydrocarbons in global markets.
Therefore, the idea of setup of a peculiar "gas OPEC" is considered logical and attractive enough, but nevertheless depending on its politicization, openness and key decision making rules.
Having originated back in 2001 as the Gas Exporting Countries Forum (GECF), the "gas OPEC" design now brings together, apart from ‘holy trinity' Russia-Iran-Qatar, Algeria, Bolivia, Brunei, Egypt, Indonesia, Libya, Malaysia, Nigeria, Norway (observer status), Oman, Trinidad and Tobago, UAE and Venezuela. Through 2007 at least three countries: Iran, Russia, Algeria, will most likely announce the setup of new organization. The countries with GECF are controlling 73% of world's gas reserves and 42% of global production; the mentioned ‘holy trinity' control 55% of world's gas reserves and supply nearly 35% of gas to Europe.
The first step was taken in August 2006. Russia and Algeria have signed a memorandum; Gazprom offered Algerian officials eight fields in production segment and the latter selected four of them. Furthermore, Gazprom suggested Algeria's participation in Baltic LNG production plant design. Apart from extraction and production of LNG, Russia and Algeria study the possibility of participation in third countries' markets, both in commercial operations and coordination of positions within GECF. The parties stated their intention to monitor and control gas prices. "We are concerned about relations between the RF and Algeria. Europe is the largest consumer and we want prices to be fair. This concerns commercial aspect and pricing transparency as well", said Andris Piebalgs, the EU Energy Policy Commissioner.
In January Iran's spiritual leader Ali Khamenei at the meeting with Russia's Security Council Secretary Igor Ivanov has performed with the suggestion to establish an OPEC-like organization of gas producing countries.
The gas cartel idea has not been yet upheld by world's third gas producer and GECF member - Qatar (see previous issues of Caspian Energy Magazine for reference). Abdullah bin Khabam al-Attjah, Minister of Energy of Qatar, said ‘we do not see any need in setup of OPEC-resembling gas association as the gas market is more complicated'. Instead, he said, exporting countries would rather focus on developing GECF.
Norwegian Ambassador to Russia Oyvind Nordsletten told Rusenergy his country's officialdom does not consider establishing an association of the kind. "We do not believe in gas OPEC, but extension of dialog between suppliers and consumers of energy resources might serve as strengthening mutual understanding in this field".
Samuel Bodman, US Secretary of Energy, said establishment of ‘gas grouping' contradicts ‘long-range interests of both producers and consumers'.
However, "gas OPEC" has acquired an unexpected support in Europe. Christophe de Margerie, President Total, told Times such an alliance might play a positive role in conditions when oil&gas production costs hit the ceiling. In his opinion, nothing else but OPEC helped stabilize the oil market and oil prices. It would have been much higher. President of Total is confident that oil alliance is quite an important association by its control of oil prices.
Aleksey Miller, Chairman of the Board with Gazprom JSC, told Interfax journalists the association to bring together gas exporters cannot be the OPEC-like cartel. Nevertheless, the hhead of monopoly said ‘the mechanism of adjustment is necessary. Large gas producers are concerned in adjusting long-range strategies of exploration, production and delivery of gas, and optimization of investment programs to make the supply meeting demand'.
The gas cartel problem is that two countries, Iran with its nuclear club and ambitious gas monopolist Gazprom in person of Russia, will be leading the cartel in case it is setup after all. Therefore NATO advisers distributed a secret report to allies warning about the necessity in taking steps to prevent Russia's attempts to setup a "gas OPEC" and consequent strengthening Russia in pressing against Europe. Kremlin's Press Service claimed these reports ‘absolutely groundless'. At 28-29 November NATO summit in Riga Secretary General Yap de Hoop Scheffer said ‘energy security is the problem directly concerning NATO. I hope heads of governments and states ask the North Atlantic Treaty to identify NATO's contribution to the global energy dialog'.
It would be easy to suggest what kind of reaction will follow the setup of such organization. In advance, the cartel is going to become a new arena of geopolitical stand with its epicenter in global gas market, which is inadmissible today, when it is only being formed, because instead of desired result - sustainable conditions for new projects - this will cause aggravation of new investment risks that imminently accompany generally slow-to-start gas projects.
One should not forget that Iran and Russia are competitors in gas market and if the market for Russian gas is mostly limited to long-range supplies to European consumers, for Iran it is the broader LNG market with delivery to countries of Asia and Pacific region and Atlantic markets alike. In Iran, despite the tough investment climate and the ‘Middle East danger' image drawn by Americans, virtually all largest companies of Europe either work or intend to; Asian investors are active as well. In Russia it is just contrary - production sector is monopolized by state-controlled Gazprom that displaces foreign companies from major strategic projects in Russia and swallows survived independent producers. As a result production at Iranian fields is expected to grow 3 times by 2015, while Russian production at best by 3% (according to Gazprom, from 550.4 (2006) to 565 billion m3 in 2015).
Here is the reason why Russia is so jealous with gas resources of Kazakhstan and Turkmenistan that should perform ‘silent donor' parts in Kremlin's plays. What kind of gas OPEC or free market one can speak of when owners of huge Central Asian resources (15% of world's gas reserves) are the ‘hostages' of their geographic location and are deprived from access to free markets? And what will be the pricing mechanism within the cartel when it is not known Gazprom's decision-making schemes for establishing a ‘price threshold' for CIS countries (for example, by doubling prices in December 2006 for delivering gas from Kazakhstan to Azerbaijan and Georgia through its network if the initial price remained the same?
Therefore until all the participants of today's gas market acquire the equal partner in person of Gazprom, the "gas OPEC" idea looks just a tool of psychological pressing against European consumers frightened by cold winters - now it is evolving into a political stuff as it is becoming apparent in the light of formed multi-polar world.