Gas or Hot Air?

Qatar

Economic News

22 Jul 2010
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Qatar, along with Russia and Iran, has moved towards forming a permanent organisation of leading gas-producing nations, a step that could lead to the establishment of a grouping similar to the Organisation of Petroleum Exporting Countries (OPEC), intended to give gas exporters greater control over the international market.



On October 21, Qatar's Deputy Prime Minister and Minister of Energy and Industry Abdullah bin Hamad Al Attiyah - along with Gholamhossein Nozari, Iran's oil minister, and Alexei Miller, chief executive of Russian gas giant Gazprom - jointly announced in Tehran that the three countries had agreed to establish an organisation to boost cooperation.



According to Al Attiyah, representatives of the three countries will meet in Doha before the end of the month and then again in Moscow to formalise the new body before presenting it to a gathering of other major gas-producing nations.



"God willing, in the next meeting of the gas exporting countries, they will affirm the establishment of the organisation," he said.



The agreement between the three countries, which between them control around 56% of the world's natural gas reserves, set alarm bells ringing among leading importers, especially those in Europe.



The European Commission was quick to condemn any plan to form a gas cartel, issuing a statement saying any such move would prompt the EU to revise its energy policies.



"In principle, the commission is against cartels for the sale and marketing of products, and hydrocarbons are no exception to that," Commission Energy Spokesman Ferran Tarradellas Espuny told reporters in Brussels. "We believe the best conditions for the sale of a product such as gas are a free and transparent market."



An international gas cartel could negate efforts by the EU to diversify its sources of natural gas, which were undertaken in order to reduce its reliance on Russia. Concerns in Brussels will be heightened by the news that Qatar is one of the driving forces behind the proposed new exporters grouping, as the Gulf state has increasingly been seen as an alternative supplier to Russia.



Both the UK and Italy have turned to Qatar as a source of gas, with the former planning to meet 20% of its gas needs through imports from the Gulf state and Italy around 10%.



The proposal to form a gas cartel is not a new one. Russia suggested such an organisation in 2002, with Iran again raising the issue early last year, while Algerian Energy and Mines Minister Chakib Khelil said last year that a gas equivalent to OPEC would eventually become a reality.



Qatar is already a member of the Gas Exporting Countries Forum, a loose-knit grouping of gas-producing states founded in 2001 that meets periodically but has no stated agenda for forming a gas cartel.



Though the announcement of close cooperation between the world's big three gas powers may have sent tremors through the industry, it is still unclear what will come out of the agreement. Even at their joint press conference, Al Attiyah, Miller and Nozari were sending out somewhat mixed messages.



According to Miller, the new body would review existing projects while implementing new ones, and Nozari spoke directly of forming an OPEC-like group. Meanwhile, the Qatari minister said the agreement would strengthen cooperation between the three producers.



Many analysts doubt that a gas cartel is viable, at least in the present economic climate, and also query why Qatar would feel obliged to join such a grouping if formed.



Samuel Ciszuk, Middle East analyst for financial advisory firm Global Insight, said it was difficult to see Qatar, Iran and Russia finding common ground to work on projects together.



"It's very hard to see anything concrete come out of this. The actors have too divergent interests to get anywhere right now," Ciszuk told Reuters on October 22. "Qatar is not really in need of funds. They are earning a lot of money and are fully capable of pursuing projects on their own."



One reason Qatar may have raised the spectre of an international gas cartel is to shore up prices, which have fallen in line with the drop in oil. Having committed to increasing LNG production to 77m tonnes by 2012, Qatar does not want to see its major asset being sold off at a cut price. With predictions that demand will fall next year in Asia, one of its leading markets, Qatar may be looking for an avenue to promote a touch of uncertainty among buyers, much as OPEC is able to do with its talk of cutting production.



The meeting in Doha at the end of the month may give a further clue as to the direction of any new grouping of gas exporters, as well as more clearly illuminate how Qatar views the future of the industry.

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