[A-List] Gas OPEC

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

Moscow's warm response to Tehran's recent overtures about a gas OPEC
-- an idea that Putin had entertained before them, to begin with -- is
politically important today.  And, over time, the economics of an
alliance of gas producers is bound to improve, so it makes sense to
begin to lay the groundwork for it today.

<http://en.rian.ru/analysis/20070201/60049415.html>
Gas OPEC: economic advantages and political drawbacks
15:49   |       01/ 02/ 2007

MOSCOW. (Igor Tomberg for RIA Novosti) - At the meeting with Secretary
of the Russian Security Council Igor Ivanov in Tehran over the past
weekend, Iran's supreme leader Ayatollah Ali Khamenei said: "Our
countries could set up an OPEC-type organization on gas cooperation."

Judging from the initial response, the majority of analysts think that
this proposal is rooted in politics rather than economics.

This is not the first time the idea has been put forward. Iranian
President Mahmoud Ahmadinejad offered to Russian President Vladimir
Putin at their meeting in Shanghai in June 2006 to establish what he
described as cooperation "in fixing gas prices, and major flows in the
interests of global stability."

Indicatively, the same idea was discussed during the recent Algerian
visit of Viktor Khristenko, Minister of Industry and Energy: Algeria
and Qatar could join the two countries. The resources of this
potential cartel are very impressive - they account for more than 30%
of the world's gas production, and their aggregate proven reserves
exceed 60% of the total, which is comparable to OPEC's respective
share in the global oil reserves - about 68%. The would-be cartel
could include other members as well.

The excerpts of a confidential analytical report by NATO economic
experts, published by The Financial Times last November, include
Algeria, Qatar, Libya, Russia, Central Asian countries, and Iran into
OPEC's gas counterpart. The list could be extended - Mauritania, Mali,
and some Central African nations could also become part of it. Gazprom
showed great interest in these countries during Khristenko's official
visit.

In 2006, the appeals for a gas OPEC became stronger. The main reason
was discontent with the European Union's energy policy. Its advocates
see EU strategy as an attempt to set up an association of consumer
countries aimed at driving a wedge into the ranks of gas producers in
line with the divide-and-rule principle. In other words, the goal is
to let the consumers dictate prices to the producers.

Judging by the number and tone of publications in the media, and
interviews by politicians and experts, the idea of a gas OPEC is
gaining a foothold in Russia as well. With different degrees of
caution, it was supported by a number of State Duma deputies and
Senators (Vladimir Medinsky, Viktor Orlov, Alexei Mitrofanov, and
Gennady Seleznyov). The opinion they all share is that a gas alliance
of producers is a sound idea, and Russia will profit from it. The bulk
of experts polled by the media agree.

The official authorities have the opposite position. During his
Algerian visit, Khristenko said that Russia and Algeria were against
this idea. "We should not move towards a cartel agreement," the
minister said.

For the time being, the Russian Government has not given any response
to the latest Iranian proposal, which is understandable. Any clear-cut
answer by the Kremlin is bound to directly influence the global
geopolitical alignment of forces, something it does not seem to be
ready for. For this reason, the authorities have limited their
reaction to an interview by an anonymous official from the Ministry of
Trade and Economic Development to RIA Novosti. It was clear from what
he said that the ministry considered even a discussion of the idea
premature.

The ministry's objections are based on the fact that OPEC has quotas
for oil production, and this is something Russia does not need for
gas. Gas production in Russia rests on potentialities of deposits and
on the quickly growing demand for gas at home and abroad. Moreover,
Gazprom is bound by long-tern export contracts, and they are its
natural lodestar. As for OPEC, it was established in 1960 to
coordinate the policy of oil producers in their clash with the U.S.
and other Western countries.

In this case, the ministry's position coincides with Gazprom's view,
which already accounts for a quarter of the European gas market, and
half of import supplies. A formal alliance with other suppliers is the
last thing Gazprom needs today. But this is today, when it still has
enough gas to honor its long-term contracts and meet the growing
external demand, although it already has to limit supplies to the RAO
UES, the Russian electricity monopoly.

Gazprom's production is clearly lagging behind the growing demand.
Under the circumstances, export quotas would not only help save face
if there is not enough gas for exports, but also keep export profits
at the same level with higher (or high) prices. Gas quotas promote
rather than impede the development of the gas market in conditions of
uncontrolled consumption. They are good for the global energy balance.

Interestingly, all politicians and analysts are trying hard to take
the cartel idea of a gas OPEC out of its political context. It is
clear that Khamenei's proposal is more political than economic. There
is a risk that in a bid to restore its waning popularity, the George
W. Bush Administration will still decide to deal pinpoint strikes at
Iran's real or invented nuclear facilities. This compels Iran to go
all-out in a bid to find potential allies, and prove that it has
levers of influence on industrialized countries.

Clearly, Russia's cartel with Iran and Algeria would be an undisguised
challenge to the West, and not only in the energy sphere. However, in
perspective this alliance is quite possible. For the time being,
long-term contracts are crucial in the world gas market, and most of
them involve transportation through pipelines. But trade in liquefied
natural gas (LNG) is skyrocketing. The LNG consumption is growing 3.5
times faster than that of pipeline-transported gas (7.7% a year
against 2.2%). A clash of interests on the market between sellers and
buyers may encourage consolidation of major gas exporters, all the
more so since the LNG and oil markets have an identical structure. The
EU is fully aware of this.

Some big Western companies are beginning to consolidate their
positions in countries that can potentially become cartel members,
ignoring political considerations, even the threat of America's anger.

On January 29, 2007, the European oil giants Royal Dutch Shell and
Repsol YPF sighed a tentative agreement with the Iranian government to
develop Persian Gulf gas deposits. Under the agreements, the UK-Dutch
concern, and the Spanish company will build an LNG plant and a port
terminal for the South Pars deposit in southern Iran. The plant will
have a capacity of three billion cubic meters of gas a year. Shell
estimates the project at $4.3 billion dollars. Iranian national oil
company NIOC believes the costs may reach five to six billion dollars.

Returning to the question of Moscow's attitude to Iran's proposal, we
should bear in mind that Russian President Vladimir Putin was the
first to voice the idea of a gas OPEC. At the meeting with Turkmen
President Saparmurat Niyazov in 2002, he offered Central Asian
countries to create what he called a "Eurasian gas alliance" together
with Russia. But at that time, Putin's suggestion did not meet with
support of the proposed cartel's members, Turkmenistan above all.

Much has changed since then, including the gas correlation on
post-Soviet territory. However, if Russia is to consider different
versions of gas producers' alliances in the face of increasing
consumer solidarity, it should start with its neighbors - Central
Asian nations. The political will of potential members is the only
missing instrument for translating the idea into reality, although in
bilateral discussions, Central Asian leaders always talk about it.

Interest in this subject on the part of Iran, Algeria, and other
Islamic countries may encourage Turkmenistan, Kazakhstan, and
Uzbekistan to revive dialogue with Russia. Clearly, today Russia will
have to share some of its monopoly, and possibly profits, on the
Western markets with the future allies. But this turn of events may
have its own advantages - guaranteed gas supplies, and a farewell to
the tiresome competition for markets and top prices.

In mid February, Vladimir Putin will visit Saudi Arabia, Jordan, and
Qatar. In April major gas producers and exporters - gas OPEC potential
members - will meet in Qatar to discuss concerted efforts. The idea of
a gas cartel will probably become institutional at this meeting.

Igor Tomberg, Ph. D. (Economics), is a senior research fellow at the
Center for Energy Studies of the Institute of World Economy and
International Relations, Russian Academy of Sciences.

The opinions expressed in this article are those of the author and may
not necessarily represent the opinions of the editorial board

<http://online.wsj.com/article_email/SB117037819504695589-lMyQjAxMDE3NzAwMjMwNzI4Wj.html>
Russia and Iran Discuss
A Cartel For Natural Gas
Potential Clout Alarms
Big European Buyers;
Previous Effort Fizzled
By RUSSELL GOLD and GREGORY L. WHITE
February 2, 2007; Page A1

. . . . . . . . . . . . . . . . . . . .

Talk of creating a gas cartel appears partly to be an outcome of
dissatisfaction among gas suppliers with the emerging international
gas market. After investing billions of dollars into boosting output
over the past five years, "it's difficult to place all of this gas in
the market at a price that they're comfortable with," says Ira Joseph,
executive director of international gas at PIRA Energy, a New
York-based energy consultant. The discussion of a cartel, he says, is
"in large part a reflection of that."

India and China, both growing importers of tankers full of liquefied
natural gas, have used their huge demand potential as leverage in
negotiating long-term pricing. There is concern among gas suppliers
that other Asian buyers, in particular Japanese and Korean utilities,
may seek similar pricing when numerous long-term contracts begin to
expire in coming years.

While oil is traded in a global marketplace, gas is bought and sold in
fragmented markets. The U.S., for instance, gets most of its gas from
domestic sources as well as Canada and Trinidad. Europe gets most of
its gas from the North Sea, Russia and exporters from North Africa and
the Middle East.

Russia's interest in pooling its gas supply would be unusual, given
that it never joined OPEC, despite being the world's second-largest
oil exporter, perhaps because it didn't want to submit to quotas set
by other countries. It has resisted past calls to curtail output to
support prices.

Still, Mr. Putin has been working to strengthen Moscow's ties with
other major gas producers. After he visited Algeria last year, Gazprom
last month reached a series of cooperation agreements with Algeria's
Sonatrach, Europe's No. 3 supplier. European Union Energy Commissioner
Andris Piebalgs called for an explanation from Algeria and Russia,
since they could use their 35% share of the European market to
potentially fix prices.

Next week, Mr. Putin travels to the Persian Gulf on a trip that will
include the first-ever visit by a Russian leader to Qatar, which
controls the world's third-largest gas reserves.

Iran state television quoted Mr. Khamenei as saying on Monday: "Iran
and Russia can establish the structure for an organization of gas
cooperation like OPEC, as half of the world's gas reserves are in
Russia and Iran."

Earlier this week, Qatari Oil Minister Hamad al-Attiya said on
television that he thought it would be difficult to form a gas
producers' organization, but didn't rule it out. He pointed out that
most gas-supply contracts are typically long term because of LNG'S
up-front production costs, extending more than 20 years. That would
undercut any concerted effort to make short-term adjustments to
production or otherwise influence prices.

Write to Russell Gold at russell.gold@xxxxxxx and Gregory L. White at
greg.white@xxxxxxx
--
Yoshie
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