No Gas Cartel in the Near Future

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Energy industry publisher Platts is reporting that the Gas Exporting Countries Forum (GECF) is meeting in Moscow this week, and is expected to sign a framework agreement to set up a natural gas exporters forum. However, the GECF does not plan to form a natural gas cartel similar to OPEC.

Essentially what the GECF has done is formalize a loose framework thathas existed for many years. The forum will now try to agree on buildinga permanent office, with staff and all the trimmings. That should beinteresting. The leading contenders for the headquarters are Algeria,Qatar, Iran, and Russia.

Russia, which has always avoided joining OPEC, has been leading thecharge for a strong group of natural gas producers. More than two yearsago, Vladimir Putin, then Russia’s president, rejected the idea of anatural gas cartel. Cartelization does not appeal to the Russians,especially if they cannot force the cartel to adopt the Russianposition.

And a natural gas cartel faces a lot of problems. Natural gas hashistorically been a national or regional commodity. LNG shipments havebegun to change that somewhat, but until the LNG spot market is farmore liquid than it is today, there won’t be an truly global market fornatural gas. Without that market, cartel pricing just won’t work.

That level of liquidity is years away, and the GCEF knows it. Algeria’soil minister puts it this way: "Basically, the [GECF] will be aforward-looking forum and how members can protect their interests inthe long term, in terms of getting the best price they can get for theproduct to ensure that gas is competitive with other products such asgasoil, fuel oil, nuclear power and solar energy."

Paul Ausick
December 23, 2008