Gazprom, Libya, and Possibility of a Gas OPEC

Via Robert Amsterdam, a very insightful look into recent activities by Gazprom, Libya, and possibility of a Gas OPEC.  While some analysts have been skeptical about a possible gas cartel given the regional markets aspect of natural gas (which means that prices on the spot market could never be manipulated by production quotas as they are with oil), the fundamental idea of a gas cartel is not about controlling prices, but is about carving up markets and diminishing competition.  As noted in the article:

“…the issue of gas cartel is back in the news yet again following Vladimir Putin’s symbolic visit to Libya, and the announcement in Kommersant that the Russians are preparing to take a draft charter for a gas OPEC to Iran for revision.

Last year, the two most critical countries to help Russia throw the noose around the European Union, or at least help lend to the appearance of this market dominance, were Italy and Algeria. At the time, I told the Italian press that Gazprom’s MoU with Algeria (which was subsequently abandoned without producing any fruits) had been a contributing factor in making Eni sign Europe’s largest supply deal with Gazprom, participate in the auction of stolen Yukos assets (thus helping the Kremlin appear law-abiding in the re-nationalization process). Eni was, in essence, the first victim of the new Russia-led gas cartel, in turn allowing Gazprom direct access to sell to Italian consumers and opening the possibility of major asset swaps with Libya – which is now serving the role threatening leverage role that Algeria served in 2006-2007.

In Libya, we are currently witnessing the full deployment of the Kremlin’s energy diplomacy toolkit, which we have seen at work everywhere from Venezuela to Bolivia to Nigeria. First, the government gave Gazprom a boost over the competition by writing off $4.5 billion in Libyan debt – just like that – in exchange of course for new contracts with Russian state-held firms. Further pleasing General Muammar Gaddafi, Putin opened talks with the Libyans on future arms deals (just like Algeria) and deepening trade, leading the reformed pariah to declare the visiting Russian head of state “our great guest” along with other platitudes welcoming Russia’s return as a superpower and global counterweight to Washington.

…However the gas cartel project should not continue its advance while energy importing nations just sit idle with their eyes wide shut. It needs to be understood that this gas OPEC will function in different ways than the oil cartel, and that the focus needs to be placed on competition and transparency in this sector. We should begin to ask reasonable questions as to why the Kremlin is working so hard to establish close relationships with alternative suppliers of natural gas to Europe, using debt forgiveness and arms deals as a way to outbid international gas companies. We must be conscious of the potential political leverage that Gazprom’s ownership of such assets provides to the Kremlin, and how and why the state could choose to exercise it. Lastly, the Western world needs to use both carrots and sticks to bring Russia back toward rule of law and an equitable energy relationship such as the Energy Charter Treaty to help place a legal buffer between energy supplies and the whims of the executive. In the end, the security provided by the ECT will be beneficial for both producers and suppliers.”

This entry was posted on Wednesday, May 7th, 2008 at 12:16 pm and is filed under Algeria, ENI, Gazprom, Iran, Libya, National Oil Company of Iran, Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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