RUSSIA PUMPS UP GAS PRICES

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Russia, Qatar, and Iran have big plans for the natural gas market

At a meeting in Tehran yesterday, Gazprom CEO Alexei Miller and the oil and energy ministers of Iran and Qatar announced the formation of a “big gas troika” that will serve as a foundation for the natural gas market’s equivalent of OPEC.


At a meeting in Tehran yesterday, Gazprom CEO Alexei Miller and the oil and energy ministers of Iran and Qatar announced the formation of a “big gas troika” that will serve as a foundation for the natural gas market’s equivalent of OPEC.

It’s worth noting that representatives of these countries have been working on the “gas OPEC,” in all seriousness, for around two years now – ever since Iranian religious leader Ayatollah Ali Khamenei made the first official announcement of the idea.

The “gas OPEC” was expected to be established at a forum in Moscow this summer; but some fundamental differences between Russia and Iran led to the decision to postpone the Moscow conference until November 18.

The main point of disagreement between Moscow and Tehran concerns the new organization’s charter. According to Iran, the natural gas cartel should be an exact parallel of OPEC. Russia’s version of the charter proposes a fairly mild framework: the organization should be no more than “an international arena for developing common pricing formulas for gas and determining the expediency of building new gas pipelines, taking forecast risks into account.”

Gazprom spokesman Sergei Kuprianov told us that the “gas troika” should resolve all its differences at the talks in Doha. “Our association is not a gas OPEC,” said Kuprianov. “Russia, Iran, and Qatar have common interests along the whole chain of the gas industry – from production to transport. This is an open association, and other participants are welcome to join if their interests coincide with ours.” The real cartel will be formed at the gas exporter countries forum on November 18. As well as the top three gas producers, this will also be attended by Algeria, Indonesia, Libya, Malaysia, Nigeria, the UAE, Egypt, Trinidad and Tobago, and Venezuela. And even if the “big three” manage to resolve all their differences by November, some further objections may arise among the other nine gas producers.

The only thing all three sides have in common is that they are the three countries with the world’s largest gas reserves. But in contrast to Russia and Qatar, Iran exports very little of its gas. And Qatar, unlike Russia, has put its money on exporting liquefied natural gas; it is the most dynamic player in this market. Thus, the three countries have hardly any joint projects or common interests.

In effect, Gazprom CEO Alexei Miller admitted yesterday that falling energy prices are the chief factor prompting Moscow, Tehran, and Doha to fast-track this meeting, not waiting for the other nine participants. Gazprom’s official press release quotes Miller as saying: “We agree that oil price fluctuations do not cast doubt on the fundamental thesis that the era of cheap hydrocarbons is over. All sides will base their efforts on that principle.”

Mikhail Korchemkin, head of East European Gas Analysis, says that the announcement about the impending formation of a gas OPEC is “a sign of Gazprom’s panicked reaction to falling oil prices. While Gazprom will make a profit of $30 billion this year, its profits will fall to $3-5 billion next year, with oil at $70 a barrel – and Gazprom might actually make a loss in 2010. So Gazprom is now making every effort to stimulate the market. Gazprom has already made a habit of occasionally trying to intimidate the Europeans with talk of redirecting gas to India and China. Now Gazprom has been joined by Iran. Now Iran and Russia will combine their efforts in exerting moral pressure on the market.”

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