Opec idea to loom over gas producers meeting

Big gas powers meet in Qatar on Monday when they are expected to tackle issues ranging from soaring production costs to whether they could ever set up a price-fixing cartel.

Speculation that the Gas Exporting Countries Forum (GECF) is seeking to form the gas equivalent of the Organization of the Petroleum Exporting Countries (Opec) has been repeatedly denied and the subject is not on the meeting's official agenda.

But that does not mean it will not be discussed.

Algerian Energy and Mines Minister Chakib Khelil has said the idea of a gas Opec was not initiated by the producer countries and had grown out of the fears of consumer nations.

"It is the consumers really that deep in their subconsciousness want to have a monster," Khelil said, although he added the GECF could consider the issue.

"We may end up forming a group of experts in the area to think about it and to keep thinking about it," he said.

Officials from Russia, the world's biggest gas power, have been among those to reject the gas Opec idea, although the denials are not quite unanimous.

"We believe that any instrument which can play a certain market role and defend the interest of producers will be useful. We as producers should have a chance to set up a properly functioning institution," said Stanislav Tsygankov, head of external relations at Gazprom.

In line with resource nationalism -- or resource-holders retaining a greater share of their wealth -- gas producers could collaborate at the expense of consumers and international oil companies (IOCs) without necessarily creating a cartel.

"The real threat is to the IOCs," said Frank Harris of consultancy Wood Mackenzie. "They would cooperate to the exclusion of the IOCs."

Russian gas export monopoly Gazprom <GAZP.MM> has already agreed to cooperate with Algeria's state-run Sonatrach.

"It is a big issue for the IOCs in terms of accessing growth," Harris added.

Equally, the resource-holders might try to thwart the European Union, which is striving for market liberalisation and the demolition of monopoly-like control.

"Europe is trying to create a more competitive internal market for gas, transportation and so forth," said Giacomo Luciani, senior consultant at the Gulf Research Centre. "Russia is trying to torpedo this because it is damaging to their interest. Algeria is also worried, although less so."


The GECF was founded in 2001 and has held annual ministerial meetings, with the exception of last year when it did not meet.

It has been considered much less important than Opec, although the rising share of gas in the energy mix and growing concern about security of supply has raised the group's profile.

According to figures from the International Energy Agency, growth in gas demand will outpace most other energy sources.

It will grow by an average of 2% a year between 2004 and 2030, compared with average oil demand growth of 1.3%.

The advent of liquefied natural gas (LNG) has also transformed the landscape.

LNG is gas cooled to liquid form so it can be shipped to various markets and is far more flexible than pipeline gas, which is supplied to long-term customers.

Analysts view LNG as a step towards creating a global gas price, but gas is still far from emulating oil.

"The only time you are going to have some kind of gas Opec is when you have a very liquid market. Lots of liquefied (natural) gas and so on," Algeria's Khelil said.


A related topic is pricing and producers have raised the possibility of breaking the link between gas and oil prices.

Many analysts again stress there is little chance of any new formula being an attempt to fix prices.

"The only thing that they could possibly do is that big producers might say any new contracts will have to be broadly the same formula," said Harris. "But the temptation for those trying to gain market share is to lower the price."

Other analysts also cited the risk of losing customers.

"Gas is almost always substitutable. If the prices get jacked up, demand falls off," said Luciani.

"But they can talk to each other on prices. Most industries do speak to each other in this way. Informally or formally, they reach agreement about what they do and don't do."

Gas prices for future deliveries of LNG have hit record levels, reflecting concern supplies could run short as the cost of bringing on new production surges.

Already there have been high-profile cancellations of gas projects.

ExxonMobil <XOM.N> abandoned plans in February for a $15 billion plant to turn Qatari gas into ultra-clean fuel (gas to liquids).

Hot as all these topics are, analysts are not expecting decisive action from the GECF.

"I see very little scope for it to become much more than a talking shop," said LNG consultant Andrew Flower. "I don't see how they can work together. We don't have a global gas market."

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