A step forward for natural gas producers and exporters

Representatives of 11 natural gas producer nations gathered in Moscow yesterday to sign an agreement establishing a standing international organization based on the Gas Exporter Countries Forum. Prime Minister Vladimir Putin made a brief speech at the meeting.

Representatives of 11 natural gas producer nations gathered in Moscow yesterday to sign an agreement establishing a standing international organization based on the Gas Exporter Countries Forum (GECF). Russia, Algeria, Egypt, Iran, Qatar, Libya, Trinidad and Tobago, Venezuela, Bolivia, and Nigeria were joined by Equatorial Guinea, which used to hold observer status. Several major gas exporters who had participated in previous GECF meetings – Indonesia, Malaysia, and the United Arab Emirates – did not send delegations to the latest meeting.

Russia didn’t escape a blow to its reputation in the process. In the course of two-level secret-ballot voting, it was decided that the new organization’s headquarters will be in Doha, capital of Qatar. Even at a meeting in Moscow, the world’s largest gas exporter was unable to get enough votes for St. Petersburg. Doha won by one vote. At a post-meeting press conference, Abudullah al-Atyia, oil and energy minister of Qatar, confirmed rumors that the next meeting of GECF ministers (in 2009) will take place in Qatar.

Gazprom CEO Alexei Miller gave a vague answer to a direct question about exactly what goals are set down in the new organization’s charter: information exchange on a broad range of issues – technologies, synchronized investment programs, dialogue with consumers, environmental protection, and so on. When asked about coordinating gas production (a hint at parallels to an oil cartel), a Russian minister stressed that “there is no need to compare” the GECF to OPEC. “We will not be talking about any need to coordinate gas production levels,” he said.

Stanislav Tsygankov, director of Gazprom’s foreign economic activity department, admitted: “In objective terms, we are not satisfied. Our maximal goal to have St. Petersburg chosen. We were in the lead on objective indicators.”

Prime Minister Vladimir Putin attended the open part of the GECF forum at the President Hotel, but he and Deputy Prime Minister Igor Sechin left after Putin made a brief speech.

Putin’s speech turned out to be packed with poor forecasts for the gas sector. He pointed out that oil prices have fallen four-fold since August, and this will inevitably affect the gas market: “Given its high inertia, we can expect everything to be much more severe there. And more time will be required for post-crisis recovery.”

The Russian Cabinet predicts that the gas sector will be affected by production geography as well as by the crisis. Putin said: “I am able to say that Russia’s investment in developing production in regions such as the Yamal peninsula and the Arctic seas shelf – building gas transport infrastructure – runs into tens of billions of dollars. Costs are rising. This means that despite the crisis in global finance and the world economy, the era of cheap energy resources – including cheap gas – is coming to an end.”

In Putin’s view, apparent talk of energy security “conceals only the desire of certain countries which lack hydrocarbon reserves of their own, or possess such reserves and wish to save them for the future, to gain special preferential access to the resources of other countries.” Putin summed up his argument by saying: “The producer, like the consumer, needs confidence about what tomorrow will bring. There is no room for selfishness here.” Putin added that he has no such confidence at present – the rules of the game in the European market are too uncertain – so he has decided to take the initiative and establish some rules.

Putin said: “In our view, the GECF should become a standing organization with its own charter and headquarters – a structure that will represent the interests of gas producers and exporters in the international arena, and express the agreed-upon position of its members on the most important issues regarding the current condition and development prospects of the gas market.” Putin referred to the UN Charter, which says that producers have the right to form alliances. Some time ago, a number of US Senators submitted a bill that would declare any new hydrocarbon exporter cartels unlawful.