Economic Update

Published 22 Jul 2010

Qatar has become an instrumental influence over attempts to create a cartel of natural-gas producing countries that could be modelled after OPEC. The idea was high on Russian President Vladimir Putin’s agenda as he toured the Middle East in early February. Russia has the world’s largest natural-gas reserves, Qatar the third-biggest.

Talk on the idea raised fears of moves by the world’s leading gas producers to artificially control gas prices or reduce Western involvement in the sector. Cooperation among gas producers could help them compete against Western energy giants such as Exxon Mobil, British Petroleum and Royal Dutch/Shell, who are now reaping record profits by developing hydrocarbons in countries dependent on their expertise.

Qatar had been sceptical of any plan to control prices, but Emir Sheik Hamad bin Khalifa Al Thani emerged from a meeting with Putin on February 12 in Doha agreeing that gas producers should cooperate more. The leaders agreed that the idea would be on the agenda at a meeting of the world’s gas countries in Doha in April.

“The Russian President and I have agreed to hold consultations among international gas exporters,’’ the emir told the local press. “They will discuss the possibility of some form of alliance.’’

Russia’s announcement in early February that it would pursue a gas cartel met with protests from a long list of countries and non-governmental organisations, including the International Energy Agency. The agency said a gas cartel would be counter-productive because it would result in lower consumption and encourage countries outside the group to look to convert other natural resources into energy.

Putin later amended his idea by denying the desire to create a cartel and insisted that coordination between major gas producers would boost supply security. His insistence did not quiet the sceptics.

“We would like Russia to explain its intentions,’’ an EU spokesman said. European countries have been wary of Russia’s growing tendency to use its natural resources politically, as a weapon to coerce countries in other areas of foreign policy. Russia is the main gas supplier to Europe, where the concern has been palpable since Russia cut off gas to Ukraine at the beginning of 2006.

If the new idea is to control gas prices, as in how OPEC controls the cost of a barrel of oil, then the group is unlikely to succeed. There is no global spot market for gas because of the difficulty of transporting it in its natural form. Gas is typically sold in long-term contracts and delivered through pipelines, and prices vary in local markets according to the quality of the gas, the methods for delivery, the nature of deals signed between suppliers and consumers, and a host of other factors.

“It is impossible to set up an organisation of gas exporting countries similar to OPEC,”Qatari Oil Minister Abdullah al-Attiyah said ahead of Putin’s visit to Doha, because oil is sold on a “daily or even an hourly basis”.

Another challenge to a would-be gas cartel is that there is no apparent leader – a country with reserves so vast and production capabilities sufficient to manipulate a global spot market. Saudi Arabia plays this role for OPEC. The country has invested in enough energy infrastructure that turning its wells on or off triggers global oil price swings. Russia’s gas fields are in decline, and Iran, the world’s second-largest gas has limited production capabilities. Iran supports the idea, Iranian Oil Minister Kazem Vaziri-Hamaneh has said.

Some industry watchers believe the true value of a closer cooperation among gas producers would be to help them reduce Western companies’ role in development and share in the profits. Russia has recently sought to reassert control over oil concessions within its territory. Recently it cited environmental concerns with a Royal Dutch/Shell development on Russia’s Pacific coast, but most analysts agree the environmental issues were trumped up to bully a foreign company into giving up its concession.     

The idea of banding together has been floated and rejected in the past, but most recently came up in Iran in January via a proposal from the country’s head of state, Supreme Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei. Russian gas executives at Gazprom rejected the idea, but the country’s policy seems to have changed since Putin’s tour of the Middle East, which also included a stop in Saudi Arabia.

In Qatar, the leading exporter of liquefied natural gas to Asian markets, officials are expected to be cautious and perhaps vulnerable to US influence. The country is strongly allied with the US and hosts two American military bases. The US reaction to the cartel idea has been unequivocally negative. The country has cited its ideological preference for free markets as well as an opposition to any attempt by Russia to increase its geopolitical power by using its natural resources for leverage. The country has supported in the past a plan to built pipelines through Central Asia and Turkey to reduce dependence on gas delivered through Russia’s network of pipes.