Gas cartel fears ‘unfounded’

Fears that the formation of a gas version of OPEC is imminent, following a recent meeting of the Gas Exporting Countries Forum (GEFC) on 9 April 2007, have been rejected by analysts at Datamonitor.

The long-term nature of gas contracts and the regional rather than global nature of the gas market means that the formation of a gas version of OPEC, currently being “spearheaded by Russia”, is unlikely, according to Datamonitor energy analyst Andrew Hill. 

One of the key factors against such a cartelisation “is the nature of the GECF organization and its disparate membership”, Hill said in a statement issued on 19 April. He added that fears among gas-consuming nations of imminent “cartelisation or being held to ransom by gas-producing nations are both premature and an over-reaction”.

The recent decision by GEFC – whose members control around 70% of global gas reserves and 42% of production – to set up a price-formula working group has sparked fears that a gas OPEC could be close at hand.  

Big producers such as Russia and Qatar are likely to want to keep supply high as they make money on volume rather than price, whereas smaller producers such as Libya and Burma will push for keeping volumes low as they aim to maximise short-term returns from their smaller reserve bases, according to the analysis.

Even if a gas OPEC were to emerge “its ability to have any sustained or meaningful impact upon price remains minimal”, argues Hill, because “Without the agreement and cooperation of the bigger producers, the smaller members of the GECF would be unable to influence prices by controlling supply.” 

GECF will remain “a debating forum rather than a cartel in waiting”, in the short to medium term, concludes Hill, until “market dynamics radically change, existing long-term supply contracts have expired and the elusive cohesion among GECF members is found.”

The next GEFC meeting is due to take place in Moscow in 2008.