We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Tue 16 Dec 2008 04:00 AM

Font Size

- Aa +

Russia talks it up

Despite clamour in the trade and consumer press growing about Russia, Iran and Qatar forming a gas cartel, it's unlikely anytime soon.

Despite clamour in the trade and consumer press growing about a gas cartel, it's frankly unlikely anytime soon.

The idea has been mooted before, but was recently given credence and momentum by Alexey Miller, chairman of Russia's Gazprom. He said in October that Russia, Iran and Qatar would collaborate to form an OPEC-style gas cartel.

The realisation would form a producer syndicate that alone controls over 60% of the world's recoverable natural gas reserves, and was met with immediate opposition from European countries, which, faced with rapidly diminishing North Sea reserves, are increasingly dependent on imported gas.

It is always more likely that the seed of such an organisation would be planted, then given time to germinate until all the players are content with the way it looks before hitting the market. However, there remain some fundamental reasons why Russia would not want to be a part of a gas cartel, which will all be examined in detail in the upcoming issue of Oil & Gas Middle East, and will be touched upon lightly here.

Firstly, Russian interest in stable trade with major European customers eclipses the benefits of participation in a "gas-OPEC." Any collusion would have the effect of galvanising a more cohesive European consumer body, leaving Russia with gas but no customers at the end of its pipelines.

Secondly, Russia's financial clout has been weakened as much, if not more, than its EU and US trading counterparts. The length of gas supply contracts extend into several decades in some cases. That guaranteed, secure revenue is needed to shore up foreign reserves and commit funding to the infrastructure needed by the gas distribution network in the future.

Finally (this list is not by any stretch exhaustive), oil is traded on a well developed, truly global spot market. This allows the product to be sold at any time, anywhere, to the highest bidder. In the natural gas market there is no real equivalent.

And if there was, the vastly more transportable LNG gas would be the mobile product which could get to market, and not pipeline gas which is Russia's biggest asset. The development of a coherent globalised spot market would play right into Qatar's hands, where the liquefaction and export terminals are ahead of any other producer in the world.

And for Russia to play second fiddle would just not do.

Daniel Canty is the editor of Oil & Gas Middle East.

Arabian Business: why we're going behind a paywall

For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.