Why a certain gas cartel can’t work?
Baku, Azerbaijan, Aug.16
By Leman Zeynalova – Trend:
The Gas Exporting Countries Forum (GECF) could turn into the gas version of OPEC, but it will eventually fail, according to the UK-based Capital Economics research and consulting company.
“The GECF already has significant market power as its members account for about 70 percent of the world’s proven natural gas reserves and around half of global gas production. That said, we don’t think that a gas cartel can work. To start with, gas production is too isolated geographically and pipeline transportation – the usual way of transporting gas – is very political. Any cartel would probably have to be in liquefied natural gas (LNG),” the company said, Trend reports.
Capital Economics believes that one of the main problems here is that the infrastructure for both liquefaction and regasification is still very expensive.
“Additionally, most gas and LNG are currently priced off long-term contracts based off the oil price. Indeed, most companies building liquefaction plants sell their gas decades in advance in order to give creditors a guarantee about future income streams. Of course, GECF could cut gas output to try and lift gas prices but, even then, we suspect that any jump in prices would be short-lived,” reads the report.
As with other cartels, the higher prices would make imports of gas from other countries outside of the cartel relatively cheap and would incentivise output elsewhere., the company believes.
“Moreover, more expensive gas would make alternative power generation sources, such as solar and wind energy, more competitive. It could potentially price gas out of the power generation market altogether.”
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