Russia, Iran and Qatar discuss OPEC-styled “gas troika”
Russia, Iran and Qatar—the world’s largest natural gas reserve holders—are considering formation of a natural gas organisation similar to OPEC. During a meeting in Tehran this month, the three states agreed to create a group, dubbed as the “gas troika” by its designers, which will meet quarterly to discuss gas pricing and supplies.
The plans for what some have referred to as the “gas cartel” may materialise on November 18th during a meeting in Moscow. The group may also include possible additions such as Algeria, Indonesia, Libya and Venezuela. The move comes as Russia, traditionally cold to the 13-nation oil cartel, has recently stated that it wants to cooperate with OPEC.
The gas market, however, is radically different from the oil market and creation of a gas organisation for producers is unlikely to yield the same results as OPEC in terms of prices. First of all, the supplier-consumer relationship in the gas sector is circumscribed by long-term contracts and rigid pipeline routes.
Even new projects, such as Nordstream, a subsea pipeline that would connect Russia with Germany via the Baltic Sea, and South Stream, planned to run from Russia’s Black Sea coast to Bulgaria and then to southern Europe, require extensive economic partnerships with the potential consumers. And, it is clear that at present no partnerships of the kind can be formed without the guaranteed security of uninterrupted gas supply based on long-term delivery contracts.
Gazprom currently supplies over 25 percent of Europe’s gas. This figure is projected to grow to 30 percent in the mid-term future.
Qatar is a leading LNG exporter. Russia is very near to becoming one. Iran is yet to make an entrance on the global gas market as a major exporter. Some commentators have emphasised the potential of a gas cartel specifically in the LNG sector, which currently comprises 8 percent of the world’s gas trade.
The global LNG sector is dominated by long-term supply contracts, and the spot trade, although growing, accounts for only 15 percent of the sector. LNG is currently a sellers market. LNG prices are already constrained, and the spot market follows its own internal logic heavily influenced by the Asian buyers.
OPEC’s members control more than 80 percent of the world’s oil production. The “gas troika,” on the other hand, while controlling about 55 percent of world’s reserves, only contributed to 25 percent of production last year. It is worth mentioning that Iran is a net importer of gas.
Alexander Medvedev, the head of GazpromExport, has said that: “the gas market structure was, is and will be different from the oil market structure. Instruments such as the production quota, which is a central instrument of OPEC, are not possible in our business because we have very tough obligations, with offtakers on a take-or-pay basis and the same strict obligations on supplier to deliver or pay.”
The stated aim of the gas troika—joint development of projects from exploration to marketing—is a much more credible aim.
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