Azerbaijan, Baku, Dec. 25/ Trend , A. Badalova/ Gas cartel was founded finally which Europe feared most. Now the forum of gas exporters has turned into official international organization with its own regulations and headquarters. But activities of the new organization is remains unclear as it is not known yet whether it will operate in line with principles of gas OPEC and how it will regulate prices. Russia's minister of energy Sergey Shmatko said "new organization should not be directly associated with OPEC. The cartel will not deal with setting quotas." However, minister's words do not seem convincing.
Some experts say the creation of cartel is not likely to bring about changes in the principles of pricing of gas.
If the formation of the "gas OPEC" is successful perhaps it could bring about a kind of coherence in world natural gas prices in the long term, said Sameer Dossani, director of 50 Years is Enough, U.S. Network for Global Economic Justice and former executive director of NGO forum of Asian Development Bank.
In the short term, pricing of natural gas will still depend more on things like how easy the gas is access and distribute than demand/supply considerations, he said.
While some countries, in particular Qatar, appear to be making progress with use of liquefied gas, the vast majority of natural gas is still transported through pipelines, Dossani said to Trend by e-mail.
Shamil Yenikeyeff, research fellow of Oxford Institute for Energy Studies, says in order to make cartel powerful player in the gas market, the member states of the forum need to address a number of issues including cooperation and successful coordination of its gas strategy.
"Suggestions of a cartel imply acertain degree of co-operation between members of such a cartel," Yenikeyeff said to Trend by e-mail.
OPEC's history shows that some members of this organisation are just "free riders" that do not wish to implement its decisions. OPEC's supply power, which determines the availability of oil on the market depends mainly on decisions of its main player - Saudi Arabia, he said.
Establishment of larger organization of three gas suppliers is very early stage to determine the degreeof co-operation between key gas suppliers. Other members of "gas OPEC" are not that important at this stage, Yenikeyeff said.
At the late Oct. Russia, Iran and Qatar, possessing 60% of world gas reserves, announced establishment of the so-called gas OPEC which will deal with the realization of coordinated projects in the field of reserves and gas production.
"However, these countries move ahead with closer integration of their gas strategies, then the new organization will become a powerful player in gas markets and this may be perceived as a worrying sign for Europe," Yenikeyeff said. The second key issue is the linkage of gas prices to oil prices, he said.
"However, at this stage it is difficult to see how the key gas producers could change the current pricing regimes for gas taking into account the nature of gas trade," Yenikeyeff said.
Gas producers need huge investments in order to develop new reserves and the relevant export pipeline infrastructure. The continued linkage of gas prices to oil price dynamics could hinder new projects in the current oil price regimes. This could hurt the buyers in the long run when they could face a shortage of future gas supplies due a situation when gas producers lack the vital financial resources because of low gas export prices, Yenikeyeff noted.
The third issue is that unlike the oil trade, gas trading is predominantly done through longterm contracts.
"This means that it would be virtually impossible for gas producers to change the terms of these contracts, including the pricing formula and the supply volumes," Yenikeyeff said.
These contracts could only be changed if the buyers agree to the new terms, he said.
"A potential shortage of future gas volumes could become a serious trump card in the hands of gas suppliers. If buyers co-operate and agree to the new terms of gas suppliers, then we'll see the development of a completely different gas market on Europe and possibly other parts of the world," Yenikeyeff said.
Members of forum of the gas exporting countries are Algeria, Bolivia, Brunei, Egypt, UAE, Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad and Tobago and Venezuela. Norway and Kazakhstan have obtained observer status. The new cartel has headquarters in Doha.
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