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Gas producers agreed with OPEC

Gas producers agreed with OPEC
OPEC had little influence until a decade after it was founded and it could take an organisation of leading gas producers even longer to gain clout, but it is moving in that direction.

Gas producers set out on long road to OPEC

OPEC had little influence until a decade after it was founded and it could take an organisation of leading gas producers even longer to gain clout, but it is moving in that direction.

At its first meeting in two years, the Gas Exporting Countries Forum on Monday decided to set up a high-level study group, led by the world's biggest gas exporter Russia, to examine tighter collaboration.

Ministers said it was a step towards turning the previously toothless body into a gas version of the Organization of the Petroleum Exporting Countries (OPEC), which has a permanent secretariat, a team of experts to analyse the balance of supply and demand and has at times sent oil prices soaring.

Some big gas powers balked at the word cartel -- a label often given to OPEC and also rejected by many in that group. They said they were not seeking to fix prices or limit supplies to consumers. But escalating demand and surging costs that have forced project cancellations or delays have focused minds on ways of working together. "Gas is gaining the edge over oil," said one industry source.

It took five years for OPEC to have a secretariat and another five-to-10 years for it to be really influential. "It could take gas even longer because it's more complicated, but we are working on it," said the source, who attended Monday's closed session.

Russia's willingness to take the lead is crucial in boosting the credibility of the forum, established in 2001 and until now regarded as a talking shop. The top gas exporter is heading the expert study ahead of the forum's next meeting, which Moscow will host in 2008.

Time will tell whether Russia could ever act as leading oil exporter Saudi Arabia does in OPEC, where it uses its spare capacity, referred to as swing production, to add or remove oil from the market as judged necessary. "Saudi plays such a role because of its spare capacity and willingness to swing," the industry source said. "Whether Russia would be in a position to do so with gas remains to be seen."

Monday's vaguely-worded official communique gave little away about the nature of the forum's committee of experts. Algerian Energy and Mines Minister Chakib Khelil was swift to say the forum had moved towards becoming a gas OPEC, but it would take time. "In the long term, we are moving towards a gas OPEC," Khelil said after Monday's meeting.

Head of Libya's energy sector Shokri Ghanem said the aim was to protect producer interests. "We'll see what they want to do, try to avoid harmful competition. We don't know who is signing this contract, what the price of that contract is, as I said, harmful competition, he said on Tuesday."

Another key issue for the committee is pricing as the gas market evolves. The advent of liquefied natural gas (LNG) has transformed the pricing landscape, although gas is still far from being a global commodity. LNG is gas cooled to liquid form so it can be shipped to various markets and is far more flexible than pipeline gas, which is supplied to long-term customers.

"It will be 10-15 years before there is a global market in gas. Right now there are different prices in different regions," Khelil said. "In the meantime, we need to look at whether the price we use is correctly defined. If it is not, we need to correct it so that we are in the right position in 10-15 years' time. We can't just sit and wait." Others agreed.

"The committee is very important. At the moment, gas markets are regional. But the trend is towards a global market. So we have to be prepared to face this global market," said Bolivian Energy Minister Carlos Villegas as he prepared to leave Doha on Tuesday.

Several ministers have said gas prices are too cheap, compared with oil, especially in view of the soaring costs of bringing on new production -- one of the factors that mean it is time to bolster the gas forum. "Yes, that's true," said Villegas of the influence of higher costs. "I think the process of reflection of the forum has allowed us to identify the most important areas of common ground -- prices, costs, production and exports." "The forum has matured," he added.

Source: Barbara LEWIS & Simon WEBB/Reuters

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