Does Russia need a natural gas version of OPEC?

The possibility of establishing an international natural gas cartel, similar to OPEC, has been discussed all over the world in the past few weeks. Until now, the idea was discussed by analysts and experts – but the other day it was proposed by Ayatollah Ali Khamenei.

The possibility of establishing an international natural gas cartel, similar to OPEC, has been discussed all over the world in the past few weeks. Until now, the idea was discussed by analysts and experts; official government representatives never said a word. But such a proposal was made to Russian Security Council Secretary Igor Ivanov yesterday, officially, by Iranian religious leader Ayatollah Ali Khamenei. It’s interesting to note that Algeria is also rumored to become a member of the gas OPEC, and when Industry and Energy Minister Viktor Khristenko visited Algeria a few days ago, there was also some discussion of a new organization. Neither Khristenko nor Ivanov are making any comments at present.

Does Russia need a gas OPEC?

Russian officials are very reluctant to talk about the possibility of an international gas cartel. Some even say that it’s being “imposed” on us – starting with Khristenko’s visit to Algeria.

A source at the Industry and Energy Ministry told us: “We were shocked when the Algerian minister for energy and mining suddenly said at the press conference after his meeting with Khristenko that the topic of a gas OPEC had not been discussed, that such a cartel is impossible, or it’s premature, and so on. We made a special point of not mentioning those words in our press release.”

Now the issue has been raised by Ayatollah Ali Khamenei. As he welcomed Security Council Secretary Igor Ivanov to Iran, Khamenei said: “By cooperating, our two countries could create a gas export organization similar to OPEC. The opportunities for expanding ties between the two sides are greater than they are believed to be.”

Russian officials are keeping resolutely silent. The impression is that Russia really is being pushed into joining a gas OPEC. Middle East countries, Russia, and some other former Soviet republics control 73% of the world’s known gas reserves. According to the International Energy Agency, 41% of gas reserves are in the Middle East, while 32% are in Russia, Turkmenistan, Uzbekistan, and Kazakhstan. If they unite, producer countries would become a real force controlling the gas market. But how realistic is such an alliance?

In Russia, only the project’s initiators – the Russian Gas Society (RGO) – are prepared to comment about a gas cartel. Last year, Valery Yazev, RGO leader and chairman of the Duma’s energy committee, was the first to mention an “impending conspiracy” among gas producer countries.

RGO Vice-President Oleg Zhilin: “A gas OPEC would offer an opportunity for consumers and producers to learn to reach agreement. If relations between us deteriorate, I wouldn’t rule out the possibility of establishing a single organizational structure among natural gas producers.”

Last autumn, the gas OPEC topic was picked up by the Americans. Fragments of a secret NATO report appeared in the Western media, predicting that such an organization would include Russia, Iran, Qatar, Algeria, Venezuela, Kazakhstan, Turkmenistan, and Uzbekistan.

In practice, however, statements made by politicians are a long way from economic realities. There are objective reasons that make it impossible to establish a gas cartel at present. Gas is different from oil in that most gas contracts are signed for a period of a year or longer, and gas is mostly transported via pipelines; so prices and delivery routes cannot be changed quickly. Liquefied natural gas can be transported by tanker, but this is very costly, so pipelines are still dominant. And a gas OPEC, if and when it is established, would hardly be able to manipulate prices as easily as OPEC once did. Politics is a different matter, of course.

Political analysts wince at the mention of a gas cartel. Mark Urnov, president of the Ekspertiza Foundation: “For Russia, even seriously discussing such a plan – let alone acting on it – is simply fatal. We risk dropping out of the context of civilized nations – especially since our positions in that regard are already shaky. All this is entirely in the realm of fairy tales, so beloved in Iranian culture.”

Russia has already announced that it will attend the gas producer country forum scheduled to take place in Qatar this April. What a perfect venue for unification! And while the idea of a gas cartel may seem like a fairy tale at present, who knows what might happen two or three years from now?