Cartel in the Cards
// "Gas OPEC" to be Created in Doha Next Month
Kommersant has learned that last week some of the world's leading natural gas exporters reached a final agreement on the creation of a so-called "gas OPEC." The consortium of gas-rich countries, which at the moment includes Russia, Iran, Qatar, Venezuela, and Algeria, is due to be formally organized in the Qatari capital of Doha on April 9. The appearance of such a powerful player in the energy arena will undoubtedly meet with an extremely negative reaction from the United States and the European Union.
Don't Change the Meeting Place
Last week vague conversations about the possible creation of a natural gas OPEC suddenly took off into the realm of the actual. Discarding the skepticism usually expressed about the idea by the leaders of the world's major gas-exporting countries, last Tuesday Algerian President Abdelaziz Bouteflika said that an OPEC-style gas cartel is an interesting idea and that he personally supports the creation of such an organization. His interest in participating in talks aimed at founding a worldwide gas cartel was quickly echoed by the president of Trinidad and Tobago, a Caribbean nation whose small size belies its influence in the world gas market.
The final spur was a statement from Venezuelan Energy and Oil Minister Rafael Ramirez, who said that Caracas "supports the idea of a gas OPEC that will supplement OPEC and that will be a excellent mechanism of regulating the two main commodities on the energy market."
There was a common thread running through the statements made by all of these officials: following the example of Russian President Vladimir Putin, they all suddenly "realized" that the energy conference that will take place in Doha in April would be the perfect place to discuss new developments in global energy policy. During his recent visit to Qatar, the Russian president even promised to send Energy and Industry Minister Viktor Khristenko and Gazprom head Alexei Miller to the conference.
The conference in Doha, which is scheduled for April 9, is actually the next meeting of the Gas-Exporting Countries Forum (GECF), an organization that was founded in 2001 to unite the countries that together control more than 70% of the world's gas reserves. According to experts, until now the organization has had little influence, political or otherwise. Following recent statements from the leaders of the countries in the GECF in favor of a gas cartel rather than a dead-end gas club, however, the stage is set for some serious changes.
Kommersant's sources in Arab diplomatic circles have confirmed that the forum on April 9 in Doha is considered a convenient moment to announce the creation of a real gas cartel and that the necessary political agreements are already close to being completed. "Of course, the basic discussions are being held not by the gas companies but by the politicians, and at a very high level Ц sometimes even circumventing the Foreign Ministries," an Arab diplomat told Kommersant.
Sergei Kupriyanov, the deputy head of the Department of Information Policy at Gazprom, confirmed for Kommersant that an extremely high-level delegation (i.e., including Alexei Miller) will be going to Doha, but he declined to comment on the existence of any particular agenda for the conference or to confirm that any agreements will be signed.
There have not yet been any reports concerning the currency in which the new gas cartel will conduct trading. However, considering Iran's long-standing plans to peg its energy transactions to the euro, it is likely that the Iranians will lobby for the adoption of the euro as the cartel's official currency.
Iran is also the fiercest supporter of the idea of forming a gas OPEC. The country's spiritual leader, Ayatollah Ali Khamenei, was the first to officially mention the possibility of creating such an organization, although the idea has been being bandied about in Russia for some time. A particularly active Russian lobbyist for the project has been Valery Yazev, the head of the State Duma's Energy Committee.
President Putin has also voiced his support for the idea more than once. "Who told you that we turned down an offer to create a cartel? Quite the opposite, in fact. I said that it was an interesting suggestion!" said the Russian leader to journalists in Qatar last February. Although Russian Industry and Energy Minister Viktor Khristenko has called the idea of a gas OPEC "the fruit of a wild imagination" and Gazprom deputy director Alexander Medvedev said that the creation of an OPEC-style gas cartel would be impossible, they will obviously be reconsidering their stances.
There have been similar disparities in countries other than Russia between statements made by political leaders and those made by economists and businessmen in the energy sector. For example, Abdullah bin Hamad al-Attiyah and Chakib Khelil, the energy ministers of Qatar and Algeria, respectively, said that they do not see the necessity of creating a gas cartel. They were later second-guessed by Qatari Emir Hamad bin Khalifa al-Thani and Algerian President Bouteflika, who declared independently of each other that the project has a bright future.
Significantly, the project is also now enjoying the active support of Venezuela, whose president just last week took the step of creating a regional gas cartel uniting South America's main natural gas producers: Venezuela, Bolivia, and Argentina. The only hitch in Venezuela's plan is that the country's volume of gas production is still not very large and its natural gas exports are nonexistent, thus demonstrating that for President Chavez regional and global gas cartels are primarily political rather than economic instruments.
The West's Fears
In the West, the possibility of a consortium of natural gas producers has provoked annoyance. "All initiatives, new or old, to take control of the delivery of energy to the markets or to limit the role of the market in setting prices all contradict the long-term interests of both suppliers and consumers," said US Secretary of Energy Samuel Bodman soon after President Putin's meeting with the emir of Qatar.
Europe is even more concerned by the plan to create a gas OPEC. Last year, after Gazprom and the Algerian state-owned gas company Sonatrach signed a memorandum of cooperation, European Energy Commissioner Andris Piebalgs acknowledged that "the context of these talks between Russia and Algeria makes us nervous." If all of the leading suppliers of Europe's energy were to unite in a cartel, the EU would be put in a very vulnerable position, particularly since Brussels has recently been eyeing Algeria and Trinidad and Tobago as possible alternative suppliers that could help the EU reduce its energy dependence on Russia.
Top managers at Gazprom make no secret of the fact that one of the Russian gas giant's top priorities is "to get into every gas heater in Germany" and the rest of the countries in Europe. From a commercial point of view, this is justified by the fact that Gazprom would receive $400-500 per thousand cubic meters of gas by selling to the final consumer, much more than the $290 that it gets from sales to a middleman. For everyday consumers, this may appear to be a fairly good deal: by dispensing with Western European traders, they could theoretically receive Russian gas for much lower prices. Local governments in several regions of Germany have even expressed readiness to sell stakes in their gas pipelines to Gazprom. If Gazprom realizes its goal, however, it will enjoy a much more privileged position than, for example, the European energy giants E.On or Gas de France, whose production of gas is much lower than their volume of sales. If gas producers in Russia and Algeria were to put their heads together to agree on a pricing system, that would effectively sideline Western European traders in the energy market.
If in the future Gazprom supplies gas directly to consumers in the EU and no longer depends at all on European energy companies, Russia will have the ability to dictate its own terms to Europe. The EU will become totally dependent on Moscow's political will, and almost no levers of counter-pressure will remain in Europe's hands.
Horrified by that prospect, Europe is struggling to contain Gazprom's expansion. In particular, European companies are trying to convince their Russian colleagues that numerous specific restrictions and high taxes will cut severely into the company's profits, making entry into EU domestic markets not an entirely profitable proposition. So far, however, Gazprom is undeterred.
The Specter of 1973
For the West, the most frightening aspect of the plan for a gas OPEC is the word "OPEC" itself, which conjures up images of the consortium of oil exporters that was created in 1960. For more than ten years, the organization was toothless and wielded almost no political or economic influence Ц much like the GECF today. In 1973, however, the members of OPEC used the Arab-Israeli War as a pretext to impose an oil embargo against the United States and Western Europe and to cut back on production, which precipitated a massive energy crisis. Within six months, the price of a barrel of gas shot up from $2 to $12.
Iran and Venezuela, who were among the founders of OPEC and who are now preparing to organize its gas analogue, are obviously drawing a parallel between the two cartels with the express purpose of making it clear that they are ready to use energy as a weapon against the West, as they did in 1973. The West is similarly interpreting Vladimir Putin's statements to mean that Russia will not hesitate to use energy as a weapon against its neighbors.
European experts often repeat that announcements concerning the creation of a gas OPEC are being made in an excessively demonstrative manner, from which they conclude that the main goal of the gas cartel's founders is just to give the West a good scare.
One of the most widespread arguments for the unfeasibility of founding such an organization is that all contracts for gas supplies are long-term, making it impossible to tinker with prices at the drop of a hat. All of Gazprom's contracts with foreign customers, however, stipulate that prices can be reviewed either quarterly or semiannually. In addition, the gas market is functioning at full capacity with a set time lag behind the oil market (gas prices are pegged to those for oil and other petroleum products). In other words, questions of future delivery volumes and the regulation of gas prices could well become subject to agreements between gas-exporting countries within the framework of a gas OPEC.
The main weakness of the emerging cartel lies in the difference of interests among its prospective members. Not all of the leaders of the world's gas producers are as radical in their outlook as Iran as Venezuela. For example, Qatar is considered an ally of the United States, and according to the Qatari media open anti-Americanism would have serious consequences for the country. Meanwhile, the Algerian press is casting doubt on the viability of such a cartel because of the uncertain current state of relations between Algeria and Russia: despite the memorandum signed by Gazprom and Sonatrach, the relationship between the two companies is still in its infancy. Accordingly, it may be easier to mount a scare campaign by means of coordinating politics rather than business.
All the Article in Russian as of Mar. 19, 2007