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Wed 24 Dec 2008 01:07 AM

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Russia hosts gas group, faces OPEC ire over oil

New grouping decides to locate HQ in Doha, not St Petersburg as Russia wanted.

Russia, the world's top gas exporter, hosted a meeting formalising cooperation between major gas producers on Tuesday but faced criticism from OPEC for refusing to join in cutting oil output to support energy prices.

With Prime Minister Vladimir Putin presiding, energy ministers from 12 gas exporting countries, many of them OPEC members, agreed to transform an existing gas forum that they said could benefit consumers and would not control output or prices.

The event, partly meant to increase Russia's clout in global energy diplomacy, did not go smoothly for Moscow.

Concern about falling prices and flagging demand quickly surfaced as country representatives said Russia should have sacrificed some of its own output to back up President Dmitry Medvedev's promise to support OPEC oil production cuts.

The Kremlin's critics said an important way to help gas prices is to bolster the oil price, which they reflect.

"We needed to redress the situation to the market of oil so as to redress the situation in the gas market," Libya's top oil official, Shokri Ghanem, told the ministers. "We are still waiting for a declaration from the Russian Federation that they are cutting their [oil] production not only to support the [oil] market, but also to support the gas market," Ghanem said.

Russia, the world's No.2 oil exporter, has said it is considering all options, including joining the Organization of the Petroleum Exporting Countries, to defend its national interests.

However it did not make any firm pledges when OPEC ministers, meeting at Oran in Algeria last week, agreed their deepest production cuts of 2.2 million barrels per day.

OPEC's President Chekib Khelil told newswire Reuters on the sidelines of the meeting that Russia had enjoyed the benefit of OPEC's cuts without sharing the pain.

"If there had been no OPEC reductions in September and October, I think we would have seen prices today at maybe $20 [per barrel]. So it was because of OPEC that revenues for Russia were at $40 now, not at $20," Khelil said.

The gas group was created out of an existing informal club called the Gas Exporting Countries Forum (GECF), which includes 16 states such as Algeria, Iran, Qatar, Venezuela, Indonesia, Nigeria and others.

Western consumers are watching the meeting closely, worried that the group will try to set gas prices and manipulate supply.

European consumers, in particular, are edgy about their main supplier gaining more clout at a time when Moscow is threatening to yet again cut supplies to Ukraine as it did in 2006, exposing the continent to gas shortages in the middle of winter.

The forum members deny they are going to control prices and said the gas market is structurally unsuited to such influence.

Nigerian Petroleum minister Odein Ajumogobia told Reuters: "The state of gas development is very different from oil. With oil you have one international oil price, with gas you have domestic, international export price, etc."

They say the main goal of the new group will be to monitor the gas market and conduct joint research.

"The difference between OPEC and the forum is very simple - OPEC looks at today, what happens on the market and makes the decision," Khelil told Reuters.

"The forum... it's more forward looking. It cannot control the volumes and price for the next 10 years because it's locked into long-term contracts and also the price of gas is locked into oil."

Russia's Energy Minister Sergei Shmatko told a closing news conference the ministers had agreed on a charter that made GECF a more formal organisation and chose Doha as the headquarters.

Russia had earlier proposed its second largest city of St Petersburg as the headquarters and Shmatko did not say why delegates endorsed the last-minute proposal of Qatar.

"It is unnecessary to make direct links between the new organisation and OPEC. We have a broader vision," Shmatko said adding that no decision had been taken on Tuesday and no discussions took place about gas production quotas.

Russia's Gazprom, the world's largest gas producer, which supplies Europe with a quarter of its gas, earlier this year signed a deal with Iran and Qatar, setting what it called a "big gas troika" to coordinate market policies. (Reuters)

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Tonse Satish 11 years ago

I suggest the name for the proposed Gas Cartel may be either "GANGS" (Global Association of Natural Gas Suppliers) or "GAS" (Global Association of Suppliers of Natural Gas)

UK 11 years ago

OPEC is led by responsible players like SAUDI and GCC states. Though they look for their interests at the end of the day, they have acted responsibly considering interests of consumers as well. With Russia, it will not be the case. Russia today is no different from the one that was led by dictators like Stalin, arrogant, irresponsible, bull-dozing type. With a sham democracy and hard headed leaders like Putin going to be around for ever, I feel that countries like Qatar must back out of this group.

Purshottam Jagiasi 11 years ago

Why blame Russia alone. OPEC is no better. When Oil prices were around US$147 & they refused to increase the production saying that the markets were well supplied & the price rise was because of speculation. Now when prices are down to US$40 because of same SPECULATION...now OPEC is resorting of production cuts. This is sheer HYPOCRISY. Is some one listening??????????????