December 24th, 2008
Via The Financial Times, a report on the recent meeting of gas exporting countries during which ministers meeting in Moscow transformed what had been an occasional talking shop into a formal body with a permanent secretariat. While, for now, Russia is probably right that “GOPEC” cannot control output and prices, (unlike oil, natural gas relies overwhelmingly on pipelines to deliver it to end-users, limiting scope for trading as it will take years for the market for liquefied natural gas – like crude, carried by tankers – to develop enough to create a big spot market) – GOPEC’s emergence is, nonetheless, significant. Russia has systematically wooed gas producers, including Iran, Nigeria, Libya, Algeria and Qatar. It clearly aims to play a co-ordinating role among producers, and has a hand in virtually all existing and prospective supply routes to Europe. Theoretically, it could co-ordinate which resources producers choose to develop and when they come on stream – increasing longer-term pricing power. GOPEC’s formation will leave control of gas development, especially LNG, in the hands of members’ national energy companies. As the article ontes:
“…A gas producers’ group could not operate in the same way as Opec, the oil cartel, which can change its members’ production from month to month in an attempt to influence the market. This is because gas is generally sold under long-term contracts, which are very difficult to break or amend.
The proposed new group, however, a formal version of the Gas Exporting Countries’ Forum, which has existed since 2001, could try to drive up the price of gas over the medium term.
The emergence of a spot market for cargoes of liquefied natural gas, which can be sold wherever prices are highest, also creates potential for short-term market management, although those cargoes are only a small proportion of total gas sales, and likely to remain so.
The gas producers’ group will for the first time have a secretariat, to be based in Qatar. Russia had hoped the organisation would be headquartered in St Petersburg.
Russia, the world’s biggest gas producer and the driving force behind the group, said it would not be a cartel, but would work to enhance energy security at a time when the gas market is becoming increasingly globalised.
However, members of the forum, including Russia and Qatar, are pushing for higher world gas prices to reflect what they see as its value as a relatively clean source of energy and potential as a transport fuel.
Gholam-Hossein Nozari, Iran’s oil minister, said the group should prevent “unnecessary and harmful competition” between producers.
Jonathan Stern of the Oxford Institute for Energy Studies said that in spite of Mr Putin’s comments, the era of cheap gas was returning because of the fall in the price of oil, which typically sets the price of gas in long-term contracts.
If oil stays at $40 per barrel, he said, the price of gas in Europe could be about $250 per thousand cubic metres by the third quarter of next year, down from over $500 in the fourth quarter of 2008.
He added that this might spur co-operation between producers.
“I have always been a sceptic about ‘gas Opec’, partly because cartels only form when prices are weak. But suddenly with oil and gas at these prices, a cartel does become more of a threat,” he said.”
Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.