Gas Producing Countries Try to Be More Like OPEC

With Russia’s Help, Gas-Producing Countries Try to Be More Like OPEC

new_york_times:
http://www.nytimes.com/2008/12/24/business/worldbusiness/24gas.html

By ANDREW E. KRAMER
Published: December 23, 2008
MOSCOW — With Russia’s support, a dozen large natural gas-producing countries founded an organization Tuesday that will study ways to set global prices for the fuel, much as the Organization of the Petroleum Exporting Countries does for crude oil.
The development seems likely to further unnerve European Union nations, already wary of their dependence on Russian energy and what critics say are efforts by Moscow to use oil and natural gas exports as leverage to reassert sway over former Soviet nations.
Russia’s foray into energy diplomacy affecting natural gas producers from the Middle East to South America also underlined its ambitions to assert itself on the world stage despite the slump in energy prices.
Initially, officials from member countries say, the group will focus on coordinating investment plans to dissuade countries from flooding the market with gas.
But if its longer-term goals are realized, the Forum of Gas Exporting Countries holds the potential to extend an OPEC-like model of price modulation to another basic commodity, even as natural gas is expected to play a larger role in global energy supplies.
The forum “will represent the interests of producers and exporters on the international market,” Russia’s prime minister, Vladimir V. Putin, told the gathering of energy ministers. “The time of cheap energy resources, and cheap gas is surely coming to an end.”
Formation of the group was a coup for Russia, the world’s largest producer of natural gas and oil. But most members also belong to OPEC, which has been at odds with Russia over its reluctance to reduce crude oil output in coordination with OPEC.
Shokri Ghanem, the oil minister from Libya, told the new group that Russia should first reduce oil output if it wants to support natural gas prices, which are linked to the price of crude oil. “We are still waiting for a declaration from the Russian Federation that they are cutting their production,” Mr. Ghanem said, referring to OPEC.
The countries in the forum have been meeting informally since 2001; what was new Tuesday was the group’s adoption of a charter that would establish a permanent secretariat. Doha was chosen as the group’s headquarters.
The Russian government, in a statement, said falling energy prices had impelled members to quickly formalize their organization. As in OPEC, the ministers in the new group espoused an ideology of defiance to the industrialized countries that are the primary customers, and stated the rights of commodity exporting nations to coordinate efforts to improve the terms of trade.
That Russia decided to join forces with the petroleum-dependent nations is a bellwether of Russia’s economic trends. As its Soviet-era scientific and industrial accomplishments fade, the country is relying more heavily on natural resources exports and associated boom-and-bust cycles.
Russia, which also belongs to the Group of 8 industrialized nations, said the group was not a cartel, like OPEC.
A deputy chairman of the Russian gas monopoly Gazprom, Aleksander I. Medvedev, said the natural gas business, which relies on long-term contracts, would make the use of production quotas, the backbone of OPEC’s pricing policies, impossible.
But the energy minister of Venezuela, the country that initiated the formation of the original OPEC in 1960, was not coy about his hopes for the new group as liquefied natural gas traded on spot markets is projected to become a more important fuel in the global energy mix.
“We see this organization as OPEC,” Rafael Ramirez said on the sidelines of the meeting. “We are producer countries and we have to defend our interests.”
But OPEC has not had a good track record of being able to control prices over the year. Despite pledges of cuts this year totaling 4.2 million barrels a day, or nearly 12 percent of OPEC’s capacity, oil prices, which topped $145 a barrel this summer, continue to fall. Prices settled Tuesday at $38.98 a barrel in New York.
A study that the group commissioned said natural gas prices would inevitably remain linked to the price of oil.
However, the study said that the environmental benefits of natural gas, including lower releases of greenhouse gases, are not priced into the fuel, offering room to negotiate higher prices.
The study also concluded that the market for shipborne natural gas is transforming the fuel into a global commodity, suggesting the industry will transform from one modeled as a utility serving pipeline customers to one built around trading.
The forum members include: Algeria, Bolivia, Brunei, Venezuela, Egypt, Indonesia, Iran, Qatar, Libya, Malaysia, Nigeria, the United Arab Emirates, Russia, Trinidad and Tobago and, as observers, Equatorial Guinea and Norway.
More Articles in Business » A version of this article appeared in print on December 24, 2008, on page B3 of the New York edition.