Russia urges gas producer group to stand firm on prices

Published: Updated:
Read Mode
100% Font Size
6 min read

Russia is hoping to rally a loose grouping of gas producers at a meeting on Monday to support a price link to more expensive oil and keep gas prices high in the face of a boom in U.S. shale gas production.

Senior officials from the 13 member Gas Exporting Countries Forum (GECF) including the leaders of Qatar, Venezuela, Algeria and Iran will join President Vladimir Putin in the Kremlin two years after holding their first summit in Qatar.

Gas producers formed the group over a decade ago with a vague ambition of improving cooperation.

Suggestions by some members that GECF should mimic the Organization of the Petroleum Exporting Countries (OPEC) by controlling supplies was a worry for gas importers in December 2008, when they last met in Moscow.

Those fears have since evaporated as a surge in U.S. shale gas production has helped create a glut on the global market, driving down prices on both sides of the Atlantic.

Millions of tons of liquefied natural gas (LNG) produced by Qatar from plants built to supply the United States flooded into Europe from late 2009 through early 2011, hitting Russia’s gas export business.

GECF leaders proved powerless to prevent prices from falling until March 2011, when a tsunami smashed into Japan‘s Fukushima nuclear power plant.

Gas demand and sales prices in Asia have surged since Fukushima, and emerging demand for LNG in Latin America has also reduced the amount flooding into Europe, Gazprom’s biggest export market.

“The organization has done little that anybody can see over the past year,” Jonathan Stern, director of the gas program at the Oxford Institute for Energy Studies, said.

Stern cited institute research saying it was unlikely to “act as an kind of OPEC-type organization and that only a couple of its members sought such a role. I maintain that view.”

Hindering cooperative action are the simmering tensions between Russia and some Gulf Arab producers over Putin’s defence of Syrian President Bashar al-Assad. Also several GECF members are big gas consumers themselves, which may make them less willing to push up prices.

At a Kremlin briefing on Friday, Leonid Bokhanovsky, the GECF’s Russian chairman, was vague on prospects for output coordination but said all producers were interested in maintaining the link to oil.

“We have several axes consolidating the interests of gas producers above all the tie between gas prices and the oil product basket,” Bokhanovsky said.

“The second component, which we believe stabilizes gas markets and reduces the level of volatility on gas markets, is long-term contracts. There is full consensus of gas-producing countries on those two preconditions, and we hope they will be further confirmed during the summit.”

Russian gas export monopoly Gazprom says the indexing of gas to oil prices is needed in term contracts to fund pipelines that cost billions of dollars to build.

But Qatar, which has invested tens of billions of dollars in plants to chill gas to liquid, is less firmly attached to oil indexation, because it has the flexibility to ship LNG to the highest bidder anywhere in the world.

Gazprom received a major blow on Thursday when a court ruled it had to include market pricing in the rates it charges German utility RWE, a major client.

The case further erodes Gazprom’s market power in Europe, its biggest market, already hit by the region’s falling demand and increased competition from LNG.

Norway’s Statoil, its chief European rival, now sells over half its pipeline gas at spot prices. Norway and the Netherlands have observer status at the GECF.

The GECF says it member’s control 80 percent of world gas production and 70 percent of LNG production.

But only Russia, which sells most of its gas via pipeline, and Qatar, which exports mostly by ship, are major suppliers on the world stage - and they have taken opposing sides in the Syrian civil war.

Iran, in past years the most vocal proponent along with Venezuela that the GECF should control prices, is a net importer of gas despite holding the world’s largest reserves.

Iran’s energy minister, Rostam Qasemi, told a pre-summit meeting in Moscow on Saturday that he hoped the group could become an influential player in the global market, the ministry’s news website reported.

But the export capacity of many of the GECF members has remained stagnant over the last two years, while competition from major new suppliers is emerging in East Africa, Australia and the United States.

Venezuela exports no gas and has become increasingly reliant on imports from Colombia. North African members Algeria, Libya and Egypt have all faced gas export problems over the last two years.

The United Arab Emirates has imported more gas than it exported over the last five years and is planning to build another LNG import terminal to satisfy its own needs, while fellow Arab LNG exporter Oman’s gas thirst is squeezing exports, according to the U.S. Energy Information Administration (EIA).

Top Content Trending