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A Future Natural Gas Cartel

What is not in doubt is the world's rising consumption of natural gas and LNG; within three years, analysts predict that global consumption of LNG will double. Natural gas accounts for about 23 percent of global energy use; after several years of record high oil prices, it is understandable that natural gas producers might want an increased share of the global energy pie.
by John C.K. Daly
UPI International Correspondent
Doha, Qatar (UPI) Aug 02, 2007
The April 9 meeting in Doha, Qatar, of the Gas Exporting Countries Forum attracted intense media scrutiny. Pundits speculated that the hidden agenda of the meeting, the first in two years, was to explore the possibility of developing a natural gas cartel along the lines of the Organization of Petroleum Exporting Countries. Such a cartel would have immense financial and political clout in the global economy. Russian President Vladimir Putin first proposed the idea in 2002.

Last January Iranian supreme leader Ayatollah Ali Khamenei floated the concept of Iran and Russia creating a cartel. The following month, Putin and Qatari Emir Sheik Hamad bin Khalifa al-Thani agreed to discuss the idea.

GECF, founded in 2001, includes Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Oman, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. The nations collectively own 73 percent of the world's natural gas reserves and produce 42 percent of global production.

The major players in such an organization would be Russia, with reserves of 47.8 billion cubic meters; Iran, which has 26.7 billion cu m; and Qatar, with 23.7 billion cu m. While Russia produces 21.6 percent of global production, two-thirds of its output is domestically consumed, leading the country's gas monopoly Gazprom to use its Soviet-era pipeline network to leverage lucrative contracts with such client states as energy-rich Turkmenistan, which have no other options for export.

While little has come as yet out of the discussions, alarm bells have been ringing across Western capitals, particularly in Washington, where the month after the GECF meeting the House of Representatives hastily passed H.R. 2264, the "No Oil Producing and Exporting Cartels Act of 2007." NOPEC's sponsors, Michigan Democrat John Conyers and Ohio Republican Steve Chabot, assert that the legislation "subjects OPEC and other cartels to federal antitrust scrutiny by eliminating the sovereign immunity they receive under current law," adding that NOPEC is designed to make it illegal for nations "to artificially set high prices and limit the production of oil, natural gas, or any other petroleum product." President Bush threatened to veto the legislation, but partisans insist they have veto-proof majorities. The White House Office of Management and Budget says it "adamantly" opposes NOPEC.

Geopolitics are increasingly driving Washington's energy agenda. Forum members Russia, Iran and Venezuela, with whom the Bush administration has deteriorating relations, would be along with Algeria and Qatar the major players in a natural gas cartel. Qatar's relations with Washington are more ambivalent, as it hosts the Pentagon's massive Al Udeid Air Base. Qatar's relationship with Russia has also been strained in the past, particularly after three Russian agents in February 2004 assassinated former Chechen President Zelimkhan Yandarbiyev in Doha.

In the past, Russia has aggressively used its natural gas monopoly to play financial hardball with Azerbaijan, Poland, Ukraine, Belarus and Georgia, and, as Russia would undoubtedly dominate a natural gas cartel, politicians are nervously predicting similar tactics, with natural gas being used to extract maximum political and economic advantages.

Certainly, comments from some of the Doha forum members indicate that work is eventually moving toward a consortium. Algerian Energy and Mines Minister Chakib Khelil said, "In the long term, we are moving toward a gas OPEC. ... The world has changed."

Sounding a conciliatory note, Qatari Energy Minister Abdullah bin Hamad al-Attiyah said, "I hate the word 'cartel.'" But mincing no words, United Arab Emirates Energy Minister Mohammad bin Dhaen Al Hameli said, "The time of cheap gas is a matter of the past."

If there was a silver lining to the forum's meeting, it came in statements by several ministers commenting that the possibility of the group becoming another OPEC was impractical, as natural gas exporting nations supplied different regions of the world and frequently locked in prices in long-term contracts. Furthermore, pre-existing bilateral arrangements may slow progress toward development of a cartel. Khelil emphasized that the major gas markets such as the European Union have reacted very negatively to the concept of a gas cartel and that Algeria did not want to create doubts in Europe over its reliability as an energy supplier.

It is also unclear whether Qatar and the United Arab Emirates, dependent on the U.S. military for their security, would be willing to enter into such an organization, which would undoubtedly be strongly opposed by Washington. For Qatar, which next year will become the world's leading producer of liquefied natural gas, the risk of alienating the United States and one of its major markets may outweigh the benefits of such a grouping. Last but not least, even Russia could face a backlash from suppliers like Turkmenistan and Uzbekistan if a cartel negotiated increased prices, further enriching Gazprom even as Central Asia received a fraction of the market value for its assets.

What is not in doubt is the world's rising consumption of natural gas and LNG; within three years, analysts predict that global consumption of LNG will double. Natural gas accounts for about 23 percent of global energy use; after several years of record high oil prices, it is understandable that natural gas producers might want an increased share of the global energy pie.

Source: United Press International

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