Time For a Gas OPEC?

8 March 2007
Written by: Nicholas Newman

SHOULD EUROPE, TAKE SERIOUSLY, TALK OF CREATING A GAS PRODUCING CARTEL?

At a time when gas exporting countries are considering the formation of an OPEC type gas producer’s cartel, EU President Barrosso has argued the case for a united European energy strategy in order to improve and maintain a more favourable bargaining position. In an interview with energy expert Jonathan Stern of Oxford University’s Institute of Energy Studies, he argues that such a strategy is necessary, but, doubts, given the very differences that exist with gas production, distribution and marketing, that the formulation of an OPEC type organisation is ‘almost certainly not viable’.

In fact, there is an organisation, the Gas Exporting Countries Forum (GECF), which seeks to promote cooperation and coordination between gas exporters and prevent cooperation. Fortunately, for Europe , Jonathan has observed that the GECF ‘has showed it to be a relatively chaotic organisation with unstable membership and an uncertain future. It rarely meets, has no website and no official documents about its activities.’

At present, a majority of Europe’s gas imports comes via pipelines from Russia , Norway and Algeria , with some via liquid natural gas tankers from Qatar and Nigeria . The current nature and structure of the global gas market, together with its ‘…higher costs and greater rigidity of natural gas transportation compared to oil or coal…’ leaves little opportunity for a gas cartel to arbitrarily adjust production volumes and price levels, in a similar manner to OPEC.

In any case, current Russian energy export policy is against surrendering any part of its existing power by involvement implicit in any OPEC type organisation. ‘ Russia has never sought to join (or been invited to join) despite its importance in the global oil trade,’ Jonathan Stern observed.

The prospect of Europe facing a repeat of its disruption to its supplies, due to Belarus and the Ukraine being in dispute with Gazprom over the price these countries should pay for gas is seen by Jonathan as ‘highly unlikely.’ Such a threat is only likely to occur ‘If they refuse to pay market prices for Russian gas supplies and allow their contracts to run out.‘ This threat is being further reduced by Gazprom building direct pipelines to Western and Southern Europe which avoids using gas pipelines via Belarus and the Ukraine.

In addition, buyers from Germany , France , Italy and Austria have recently renewed their gas supply deals with Gazprom. These ‘…15 - 25 year contracts with Russia, with clauses stating how prices are calculated, are important, not only because they substantially prolong a significant part of European gas supplies, but also because these contracts are legally binding and subject to international arbitration with liquidated damages in the event of non-performance.’
Jonathan Stein concludes that Europe should formulate an energy strategy, though it is ‘…highly unlikely…’ that EU member governments will come to such an agreement soon. However but the most pressing question is, irrespective of the development of a gas exporter’s cartel, how Europe attempts to react to its increasing dependency on gas imports from Russia and elsewhere! ENDS

BREAKDOWN EU GAS IMPORTS STATISTICS

The European Union currently imports 40% of its gas, and by 2030, it is likely to rise to 70%. At present, Russia supplies 32% of the EU’s needs. 80% of Russian gas exports are carried via the Ukrainian pipeline network, the rest of it through a pipeline linking Germany via Belarus and Poland .
The remainder of the gas imported into the European Union comes from Norway , Algeria , Nigeria and Qatar .


At a time when gas exporting countries are considering the formation of an OPEC type gas producer’s cartel, EU President Barrosso has argued the case for a united European energy strategy in order to improve and maintain a more favourable bargaining position. In an interview with energy expert Jonathan Stern of Oxford University’s Institute of Energy Studies, he argues that such a strategy is necessary, but, doubts, given the very differences that exist with gas production, distribution and marketing, that the formulation of an OPEC type organisation is ‘almost certainly not viable’.

by Nicholas Newman - 8 March 2007

 Oriinally published in http://www.cafebabel.co.uk/article/2417/gas-opec-alarm-bells-for-europe.html


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