gas heading for opec style pricing

Posted by bello on NXS thread.

"Wednesday October 22 2008

Western concerns about global energy markets hit new heights last night when Russia, Iran and Qatar said they were forming an Opec-style gas cartel.

The move by the three countries, which control 60% of the world's gas reserves, was met with immediate opposition from the European commission, which fears the group could drive up prices.

Alexey Miller, chairman of Russia's Gazprom, said they were forming a "big gas troika" and warned that the era of cheap hydrocarbons had come to an end.

"We are united by the world's largest gas reserves, common strategic interests and, which is of great importance, high cooperation potential in tripartite projects," he explained. "We have agreed to hold regular - three to four times a year - meetings of the gas G3 to discuss the crucial issues of mutual interest."

Miller's comments, likely to increase pressure on the west to accelerate developments in wind and other renewable energy alternatives, followed a meeting in Tehran with Gholamhossein Nozari, Iran's petroleum minister, and Abdullah bin Hamad al-Attiyah, Qatar's deputy prime minister and oil and energy minister.

Miller said the group was establishing a technical committee comprised of specialists and experts to discuss the implementation of joint projects embracing the entire value chain from geological exploration to marketing.

The Russians avoided the word cartel but the Iranians spelled it out clearly. "There is a demand to form this gas Opec and there is a consensus to set up gas Opec," Nozari told a news conference.

With Opec due to meet on Friday to look at ways of driving up oil prices, Miller said fossil fuels were going to cost more. "We share the opinion that oil price fluctuations don't put in question the fundamental thesis stating that the era of cheap hydrocarbons has come to an end."

The European commission said last night that it would oppose the creation of any organisation that could restrict competition. "The European commission feels that energy supplies have to be sold in a free market," said its spokesman, Ferran Tarradellas Espuny.

The west already suspects that Russia and Iran are happy to use energy to pursue political goals. The cutting off of gas by Moscow to Ukraine in the middle of a political and commercial spat caused outrage and worry in western Europe.

For its part, Iran, in its stand-off with world powers over its nuclear programme, has threatened to choke off oil shipments through the Persian Gulf if it is attacked.

A gas cartel could extend both countries' reach in energy and politics, particularly if oil prices bounce back to the highs seen this year, prompting politicians, businesses and consumers to look toward cleaner-burning natural gas and other alternative fuels.

The gathering in Iran needs to be ratified by further meetings in Qatar and Russia but is the most significant step toward the formation of such a group since Iran's supreme leader, Ayatollah Ali Khamenei, raised the idea in January 2007.

The European Union depends on Russia for nearly half of its natural gas imports. Moscow, which controls many of the pipelines from Russia and central Asia, already has a tight hold on supplies.

"To try to manoeuvre the supply makes perfect sense," said James Cordier, president of the US-based Liberty Trading Group and OptionSellers.com. "Just because it doesn't have the clout of oil, it's still in their best interest to deliver natural gas where it needs to go and manage supply in order to help manage the price."

Liquefied natural gas, a rapidly growing segment of the market, could be traded as a commodity similar to oil and the move by Russia, Iran and Qatar appears to anticipate that, said Konstantin Batunin, an analyst with Moscow's Alfa Bank.

"My take is that it is just a commitment to create something in the future," he said. "It's just a first step."


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