No to Cartel

While natural gas exports hit new highs, major exporting countries are still reluctant to establish an OPEC-style organization

Natural gas is the most popular form of energy as it is the world’s cleanest-burning fossil fuel. Therefore, it produces fewer emissions and pollutants than both coal and oil. Since the early 1970s, worldwide reserves of natural gas have steadily increased at an annual rate of roughly 5%. With the increase in number of countries that have proven gas reserves from around 40 in 1960 to more than 85 today, the gas-producing countries began to ponder the idea of establishing an OPEC-style organisation to set prices for and regulate gas exports.
In fact, there were media reports and speculations that the world’s largest producers of natural gas, particularly Russia and Iran, plan to create a gas cartel equivalent to the OPEC which sets quotas and prices. The issue was expected to gain momentum during the 7th Gas Exporting Countries Forum (GECF) meeting in Doha in April. Contrary to expectations, the main leaders in the natural gas market stressed that there was still a long way to go before establishing such an organization. “Will we sign a cartel agreement to set a prices policy [for gas]? Certainly No,” said the Russian Minister of Industry and Energy Victor Khristenko before the meeting in Doha. He added that the GECF meeting in Doha was aimed at enhancing cooperation amongst gas-producing countries as well as promoting dialogue with consumers and producers to achieve transparency in the global natural gas market.
But what about Egypt’s position on the proposed new organisation, given that it’s ranked the 8th on the world list of gas exporting countries and the 6th on that of liquefied gas exporting countries?
Minister of Petroleum Sameh Fahmy was quite clear in declaring Egypt’s stand on gas OPEC. “Egypt is opposed to the idea of establishing an OPEC-style cartel for gas exporting countries,” he told the official MENA news agency. Fahmy made the announcement in a statement he gave before flying to Doha to attend the GCFE meeting.
Fahmy further elaborated Egypt’s position towards the cartel, saying that “Egypt’s rejection to the formation of such a cartel is due to its wish to maintain transparency in international gas markets. We also refuse the idea of building a body that controls one of the essential sources of global energy,” he pointed out.
The GECF was widely believed to become the nucleus of the gas cartel as it is an organisation of the world’s leading gas producers. Established in Tehran in 2001, the GECF doesn’t have a fixed membership structure. However, Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, UAE and Venezuela, could be identified as current members. These countries control about 42% of world gas production. And they collectively have 73% of the world’s natural gas reserves.
With the Russian minister’s remarks, and the Egyptian minister’s rejection of the idea, establishing such an organisation seems to be a far-fetched idea, at least in the near future. Observers and energy experts noted that the establishment of the organisation is not viable since the natural gas market needs a lot of investments that are based on long-term contracts. Unlike the duration of oil contracts which do not exceed few months, gas contracts could extend for fifteen or twenty years.
In addition, distributing natural gas requires billions of dollars in investments in pipelines or special ships, let alone liquefying it which is extremely expensive, as it entails the building of liquefying factories and other stations to unliquefy it later when it reaches its final destination. Other energy experts, like Iranian ones, argue that organising and setting certain prices for natural gas exports is difficult as each contract has its own terms.
Nevertheless, Christian Stofais, expert at the International Futuristic Studies and Information, sees that the market conditions in the meantime are in the interest of producers. “This powerful and dominating position might urge the producing countries to foster mutual understanding to determine prices and regulate the process of signing future contracts,” he pointed out.

In addition, Stofais says, while the United States imports gas primarily from Canada and Mexico, which are in a way or another submissive to it, “we can see that Europe doesn’t have such influence on its gas providers in Russia and the Middle East.” And this, as a matter of fact, gives the upper hand to the exporting countries — especially Russia, Iran and Algeria which produce 30% of the global natural gas market — in setting the prices and amount of international production.

(By Mohamed El-Sayed)


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