Amr Kamal Hamouda* sees a natural gas cartel in the making Russia, Iran and Qatar took serious steps towards the formation of an OPEC-style organisation for natural gas-exporting countries. The announcement of this step came during a recent meeting in the Iranian capital Tehran and included the oil ministers of Iran and Qatar, and the chairman of the board of the Russian Gazprom. The choice of location for this announcement is in and of itself significant. In January 2007, Ayatollah Ali Khamenei, the supreme leader of the Iranian revolution, was the first to call for the formation of an organisation for natural gas exporting countries. Alexei Miller, chairman of Gazprom, called this new gathering the Big Gas Troika, because between them alone Iran, Russia and Qatar own 60 per cent of the world's natural gas reserves. And it looks like significant steps have already been taken towards a consolidation of the troika. Iranian Minister of Oil Golam Nozari said, "the big decisions have already been made towards the formation of an organisation for gas- exporting countries." To underline their intentions, troika members have agreed to the formation of a strategic partnership on two levels. The first includes the formation of a technical committee whose goal is to develop specific projects with well-defined schedules in the areas of production, liquefaction and sale of natural gas. The second level includes building a pipeline to pump gas from Iran's South Pars deposit -- the world's largest with reserves estimated at 14 trillion cubic metres -- to a liquefied natural gas (LNG) plant in Qatar. This supposes a total investment of $40 billion. Each country's share in the project would be 30 per cent, while the remaining 10 per cent could be contributed by external investors China or South Korea. Iran, Qatar and Russia have been engaged in an ongoing dialogue since May 2008 both at the level of experts and at the level of officials participating at the Gas Exporting Countries Forum (GECF). The aim was to transform the GECF into an organisation for natural gas-exporting countries. The GECF was established in 2001 at the initiative of Russia, Algeria, Egypt and Qatar. Its membership grew to include Nigeria, Iran, Oman, Indonesia, Malaysia, Brunei, Turkmenistan, Trinidad and Tobago, Venezuela and the United Arab Emirates. The formation of the GECF had aimed at organising the natural gas market following developments in the natural gas industry during the 1990s and the growth of world demand for natural gas as a clean, non- polluting source of energy. Actually, the main features of the natural gas market had been completed when thoughts about the formation of the forum began. The formula for long-term contracts, of at least 25 years, between producers and buyers was no longer plausible. Thus the members of the GECF did not wish to appear at first as an organisation defending the interests of producers. Rather their intentions revolved around three main points. First, to look into the conditions and estimates of pricing and the formulation of sales contracts. Second, finding a mechanism for organising the exchange of information and experiences in the natural gas industry. Third, finding a mechanism to organise competition in the market following the establishment of three centres for the purchase of natural gas. These were the EU, the US and South East Asia. In other words, the role of the forum was limited to holding consultations among its members. For this reason GECF meetings were held twice a year. The first meeting was held at the ministerial level, while the second was held at the level of experts. The meetings have continued without a fixed location or secretariat. It is noteworthy that Saudi Arabia did not participate in the membership of the forum despite the fact that it owns the world's fourth largest reserve of natural gas. On the other hand, there are the main natural gas importing countries. They account for 80 per cent of world imports and these include the US, Germany, Japan, Italy and France. They established the International Centre for Gas Technology Information. The centre's European and American branches are located in Copenhagen and Washington. It is funded by 11 countries that also benefit from its services. Of these, eight are members in the EU, in addition to the US, Russia and Japan. The centre aims to provide members with information related to natural gas technology. Since the establishment of the GEFC, there has been a dialogue among members regarding whether to transform it into an organisation for natural gas-exporting countries or to continue to rely on the forum for consultations and exchanging views and information on the gas industry. The Russian position was close to that of the Iranians in prompting the rest of members to transform the GEFC into an organisation to coordinate among its members and defend their interests. Russia's position arises from the fact that it has concluded a number of agreements to supply natural gas to the EU through a network of pipelines. Russia has never been fully satisfied with the pricing level of these agreements, especially as the EU did not allow Russia to review the prices with each country separately. Rather, the European Commission for Energy imposed on all member states purchasing gas from Russia to leave the negotiations and agreement in its hands. Russia suffered from the condition imposed by the commission which stipulated that EU member states had the right to sell among each other gas that had entered the EU from Russia or any other source. The resale could be at prices and conditions different from those concluded with the primary supplier. This meant that the resale of Russian gas would realise new gains and profits that the Russians would have no share in. It is worth pointing out that the North Atlantic Treaty Organisation (NATO) issued a detailed study in June 2006 expecting Russia to make a push towards gathering a number of countries to form a cartel of natural gas-exporting countries. On the basis of detailed information regarding Russian activity through diplomatic channels and through leading officials in the government controlled Gazprom, a number of US members of Congress met with US Secretary of State Condoleezza Rice, and presented her with a memorandum, requesting the US administration to confront any attempt to form a cartel of gas exporters. Despite the fact that the US imports the bulk of its natural gas needs from Canada and Mexico, it vehemently opposed the announcement of the formation of the Big Gas Troika. Sam Bodman, US energy secretary, declared the American administration's opposition to any cartel for gas exporters and that it would work to hamper its formation. Given that the EU relies heavily on Russian gas, the European Commission criticised the Russians' role and announced that it would oppose the creation of a gas cartel. The response from EU Spokesperson Ferra Espuny was clear and sharp: "Energy supplies have to be sold in a free market." Such criticisms all forced Russian Prime Minister Vladimir Putin to manoeuvre in order to ease fears over the planned talks in Doha, saying that the three countries do not plan to create a cartel. However, this diversion seemed to be a part of an unfolding division of roles. Qatari Minister of Petroleum Abdullah Al-Atiya said clearly that the Troika would announce before GEFC members the establishment of an organisation for gas exporting countries. So are events moving towards the establishment of a gas cartel OPEC-style? There are those who see that natural gas is different from oil altogether, and so any cartel working with gas would intrinsically be different from OPEC. The oil market is characterised by greater flexibility and quick response to supply and demand, unlike the gas market. Thus it is too early to talk about establishing a gas- based OPEC, in a sense. This could actually take from 20 to 30 years to happen. Algeria expressed such an opinion three years ago, and prefers that the forum continue as it is until it consolidates its power. Members of the so-called Gas Troika believe that the decline in oil prices has negatively impacted their calculations and economics, and also that the ongoing financial crisis will lead to further declines in oil prices. However, conditions in the gas industry are different. Supply and demand are relatively more stable. Natural gas prices have been on the rise for the past 15 years and have never witnessed a decline. This is because the growing demand for natural gas as oil is becoming depleted and its supplies falling. Although some have expressed concerns regarding the impact of the international financial crisis, so far no negative impact on gas prices or supplies has happened. The Russian spot contracts with EU countries have continued to rise. Gazprom officials do not expect any changes in this trend, especially with the excess of demand for natural gas over available supply in the European markets. Another point of view sees that the establishment of a gas cartel will elicit a counter- response from gas importing countries. The latter will move to coordinate among each other and as the cartel will be considered a monopolistic organisation some may resort to a legal confrontation in order to undermine the existence of such a cartel. On another level, most importers are involved in funding investments in the gas industry in natural gas-producing countries. Thus they may demand a change in the conditions for natural gas exploration, requesting more incentives, a greater share for investors, raising the prices of equipment and the costs of liquefaction and extending pipelines. Given that this issue has an economic side, we should not overlook the political dimension and motivations. Iran is concerned that the drop in oil prices will impact its revenues and consequently its ability to enter the atomic club. It needs to use the gas card in order to make up for the loss in its oil revenues and to pressure the West to accept its atomic energy project. Russia is aware of the EU's need for Russian gas and at the same time does not want to be pressured by the EU regarding Russian politics in the former Soviet Republics. In all Troika members appear very confident about their proposal and are scheduled to have presented to the members of the GEFC, held this week in Moscow, the details of the proposal and the charter for the establishment of the organisation. They are betting on the following facts: World demand for natural gas is expected to rise until 2030 from 2.8 billion cubic metres to 4.7 billion cubic metres. This is equivalent to an annual growth rate of two per cent which is higher than the rate of demand on other sources of energy such as oil, coal and even atomic energy. According to the American Atomic Energy Agency, the industrial sector consumes 44 per cent of the world natural gas consumption with an annual increase of 8.2 per cent until 2030. The consumption of the electricity sector is 31 per cent with an annual increase of 9.2 per cent. Personally I would not be surprised if Troika members announced the establishment of their cartel at the GEFC. The timing is appropriate. The current chaos resulting from the international financial crisis demands that resource- rich countries come together and coordinate to protect their interests * The writer is a researcher in energy affairs.
