September 11, 2007 – Washington, DC: A leading energy expert, Professor Jonathan Stern, has questioned whether a Russian-led group will develop into a “gas OPEC,” manipulating supply and prices.

 

The Gas Exporting Countries’ Forum (GECF) was formed in 2001 and includes many of the world’s largest gas producers among its members, including Algeria, Iran, Qatar, Russia and Venezuela. The group accounts for nearly 70% of the world’s known gas reserves. Seven of the group’s members are also members of the Organization of the Petroleum Exporting Countries (OPEC), further fueling fears that a gas cartel will emerge.

Concerns were piqued in February when Russian President Vladimir Putin, responding to questions about the group, said a gas cartel was “an interesting idea.”

However, Professor Stern of the Oxford Institute of Energy Studies stated in an e-mail that while the GECF is “more credible now (that) Russia is fully on board,” a gas OPEC is “no more viable.”

While the U.S. market is largely self-sufficient and the Asia-Pacific market is less dependent on gas pipelines, Europe’s largest suppliers—Algeria and Russia—are members of the GECF, which could pose a major threat to the continent’s future energy security. The two countries supply 34% of the European Union’s natural gas.

Last year, the North Atlantic Treaty Organization (NATO) warned that Russia may seek to establish a gas cartel to boost natural gas prices. The report also criticized Moscow for using its gas exports for political purposes, particularly in Georgia and Ukraine.

Rather than limit production, as OPEC does, many believe that Moscow will limit investment in its energy infrastructure and convince others to follow its lead.

The International Energy Association has warned that Russia is not investing enough in its gas sector and that the country’s gas monopoly, Gazprom, must upgrade 30% of its dilapidated pipeline system.

Yet, Professor Stern noted that there has not been any notable downturn in investment in the gas sector in any country since the GECF’s annual meeting in April. He also believes that the GECF is still nebulous, with an uncertain membership and little formal structure, and will be unable to affect gas markets for the foreseeable future.

While many have laid the onus for the cartel on the Kremlin’s doorstep, he believes that “the impetus… has come from Iran and Venezuela—the first is a net gas importer and the second does not export gas at all. So the tough talking is from countries that will not count in international gas trade for many years, if at all. Russia and other GECF members have talked of coordination rather than a cartel.”

Analysts have questioned whether a gas OPEC could be formed because unlike oil, which is based on short-term contracts, gas contracts can last up to 20 years. As gas is largely transported by pipelines, there are many unique markets, as opposed to the more global oil market. While the advent of liquefied natural gas (LNG) has made markets more unified, it is expensive to transport by tanker and accounts for only 7.3% of total gas production in 2006.

Furthermore, a report by the Oxford Institute of Energy Studies stated that a cartel is less likely now that oil and gas prices are at or near record levels, thus diminishing the need for cooperation and coordination between suppliers.

Western relations with Moscow have been strained of late. Numerous disputes, including the U.S.’s aim to establish a nuclear missile shield in Europe and the suspicious murders of Kremlin opponents, have brought relations between Russia and the West to their lowest point since the fall of the Berlin Wall.