Commodities | Mar 21 2007
By Chris Shaw
The Energy & Capital newsletter, published online by Angel Publishing from Phoenix, Arizona, suggests everyone should have April 9 marked on their calendar. Why you ask – simple, on that day it is believed nations such as Russia, Iran, Venezuela, Algeria and Qatar will announce the formation of an OPEC-style organisation based on natural gas, so ending the era of low gas prices.
The idea for the cartel apparently evolved from a dispute last year between Russia and the Ukraine, which temporarily limited supply of natural gas, which is used for heating, to Western Europe. Additionally, Europe’s ISN points out Russia has been increasingly critical of European policy with respect to the natural gas market.
Evidence Russia wants more say in the market comes from Valery Yazev, the chairman of Russia’s Duma (lower house of parliament) and head of the Russian Gas Association, who has called for such an organisation to prevent producers from missing out as a result of being forced to negotiate individually.
Russian foreign minister Sergei Lavrov has denied a coalition will be created but stated increased cooperation amongst producers can be expected going forward. NATO has responded to the rumours by reportedly sending a report to its member nations cautioning against such an outcome, warning the creation of any such cartel would strengthen Russia’s position against the West.
The significance is the group would control the majority of the world’s natural gas supplies, as Russia alone has the world’s largest gas reserves at 48 trillion cubic metres, representing 27% of the world’s total reserves. Add in the other rumoured cartel members and the group would speak for 73% of global reserves and 41% of global production.
The creation of such a cartel is far from a forgone conclusion though in the view of Energy Business Review, which points out there are a number of difficulties associated with such a move. Firstly, it would be somewhat impractical given the localities of the various countries involved and their different requirements and stages of development of a number of projects.
Secondly, the group points out natural gas contracts are traditionally long-term in nature, meaning the ability of any cartel to influence prices by changes to supply would be far more limited than in the oil market.
So make a note of the date and the potential implications of any such proposal, but also note Australia may in fact be a beneficiary of any such move given its natural gas reserves. Woodside (WPL) would appear best placed given its extensive contracts in Asia and substantial reserves.