It looks that two of the world's biggest natural gas exporters are putting their aspirations for coordination and cooperation into practical effect. Russia and Qatar are in talks on a joint project of liquefied natural gas (LNG), which may also have an upstream development component in Qatar's giant North Dome field. At the same time, Qatar expressed interest in developing gas fields on Russia's Northern Yamal peninsula.
Russia and Ukraine are working on a natural gas agreement, including pricing, to sort out their long standing differences, which will assure Europe of continued supplies from Russia.
The news is boosting the expectations ahead of the Gas Exporting Countries Forum (GECF) meeting this week in Oran, Algeria. The GECF was established in 2001 but only approved its charter in the 7th ministerial meeting in Moscow in December 2008 where it also decided to base its Secretariat in Doha, Qatar. The organisation has eleven permanent members and seven observers. They control more than 70 per cent of the world's gas reserves and probably more than 60 per cent of exports, which are likely to rise to 70 per cent by 2020. Wood Mackenzie's Global Gas Model forecast exports from GECF members in 2020 to be 1038 billion cubic metres (BCM), a huge rise from 488 BCM in 2007. While total non-GECF exports are likely to rise to 430 BCM from 325 BCM in the same period.
These numbers and the likely increase in membership reflect the rising importance of natural gas trade in the energy market, which makes consumers apprehensive that GECF is likely to turn into a "gas Opec" to set prices and limit production. These fears are prompted by a study made by Algeria to be submitted to the forthcoming meeting suggesting limiting supplies to the spot market in order to boost sagging prices worldwide.
But these fears may not be justified now. There have not been similar suggestions from other members who are unlikely to upset their long term contracts based on oil prices. But it is possible that such a move is a harbinger of future development when the size of the gas spot market becomes substantial in comparison with long term contract volumes, which is not the case now. While it is early for members to coordinate prices, they never ruled out such eventuality that may entail limiting supplies.
Large market
Chekib Khalil, the Algerian minister said recently that "All the leaders are for parity" with oil prices, that would mean targeting a price for spot gas of $12 (Dh44) per million British Thermal Unit (MBTU) while current prices have fallen to just under $4 per MBTU. It is surprising that gas prices have not recovered from the fall of 2008, similar to oil prices due to the discovery and coming on stream of new gas resources especially in the large market of North America in addition to many LNG projects completions. The collapse of gas prices is likely to impact the level of investment negatively which does not bode well for future supplies and the interests of both producers and consumers.
Gasprom Chairman Alexander Medvedev once said that GECF will be "an alliance of gas suppliers that will be more influential than Opec". While everybody recognises the importance of natural gas trade in world energy markets, such statements are probably premature.
Great difference
There is a great difference between oil and gas markets where the size of the oil spot market is so large that it is possible to talk about a "world price", while the spot market in natural gas is only a recent phenomenon, limited to LNG, which has yet to grow. Opec members are all developing countries with very close interests while GECF countries are varied in their economic development and aspirations. It will take some time before GECF countries find the ground that will allow them more control over the natural gas market. Meanwhile, the organisation's aims of mutuality of interests, the study and exchange of views and the promotion of stable and transparent energy markets will be strengthened by cross investment among members countries. The current discussions between Russia and Qatar are an example that could be followed by others especially between neighbouring countries of North Africa that export essentially to Europe and can share pipelines and LNG projects and terminals.
The writer is a former head of the Energy Studies Department at Opec Secretariat in Vienna.
