Will Russia lead the Natural Gas Cartel?

It seems that Russia is determined to come back as a key player in the international arena. To achieve this goal, the Russian government has been trying to expand its influence on Europe by tightening its grip on energy sources of the old continent. Indeed the Russian government succeeded at last to sign a landmark agreement with Kazakhstan and Turkmenistan two months ago, by virtue of which the main pipeline connecting natural gas from those two countries to Europe will pass through the Russian territories. The agreement was then widely viewed as an astounding victory for Moscow over Western European capitals and the US, which tried to make the vital pipeline pass beneath the Caspian Sea then to Turkey, far removed from the Russian territories.

The Russian government, along with Iran, also floated the idea of setting up a natural gas cartel modeled on the OPEC. In fact, there were media reports and speculations that the world’s largest producers of natural gas, i.e. Russia and Iran, are toying with the idea of creating a gas cartel which sets quotas and prices. The issue was expected to gain momentum during the 7th Gas Exporting Countries Forum (GECF) meeting in Doha last year. However, 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. Yet, they appointed a committee of experts to evaluate the idea.

Nevertheless, the idea was floated again last month when Iran, which has the world’s second-largest gas reserves, announced that it supported the swift formation of an OPEC-style organization for natural gas. “We believe that the world’s main gas producers should create such an organization as soon as possible,” Iranian Ambassador to Russia Gholam-Reza Ansari told reporters. He noted that major gas producers would discuss the idea in June at the GECF annual meeting in Moscow. Such organization could be useful for both gas producers and gas consumers,” the ambassador added.

The United States and the European Union are wary of possible creation of the organization which would lead to the growing political and economic influence of Russia and Iran. Indeed, Nato advisers have warned the military alliance that it needs to guard against any attempt by Russia to set up an Opec for gas that would strengthen Moscow’s leverage over Europe. A confidential study by Nato economics experts warned that Russia may be seeking to build a gas cartel including Algeria, Qatar, Libya, the countries of Central Asia and Iran.
The Nato’s concerns stem from the fact that Russia supplies 24 per cent of Europe’s natural gas, with Norway selling 13 per cent and Algeria, a major exporter to Spain and Italy, supplying 10 per cent. These concerns were boosted by the International Energy Agency’s warning about “the possibility of major gas-exporting countries co-ordinating their investment and production plans in order to avoid surplus capacity and to keep gas prices up.”

Although big gas exporters such as Norway, Qatar and Nigeria seem reluctant to join any cartel, and despite some experts argue that it’s difficult to set a certain price for natural gas – as it is traded very differently to oil, with long-term contracts, often linked to oil prices – the idea of creating the natural gas cartel still has tremendous possibilities.


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