13 April 2007
''Economic Brief: The Implications of a Russia-led Gas Cartel''
ussia, Iran, Qatar, Venezuela, and other members of the Gas Exporting Countries Forum (G.E.C.F.) met in Doha on April 9 amidst Western fears that Moscow may encourage the birth of a "gas O.P.E.C." Western decision-makers fear that such a new organization could give producers of natural gas an advantage over consumers.
Russia (the world's leading producer and exporter of natural gas) as well as Iran and Qatar (the two Middle Eastern powers with the largest gas reserves) have repeatedly denied that a gas cartel is under construction. Moreover, energy analysts agree that the natural gas market is still very different from that of oil, and that a "gas O.P.E.C." would not be easy to establish.
According to the argument, natural gas does not have a global market like oil. For the most part, gas is not traded on the open market (unlike oil), and the majority of contracts between producers and buyers are long-term deals. Hence, gas pricing functions differently than oil pricing.
In addition, natural gas transportation is more dependent on pipelines than is oil, since the former needs to be liquefied (and subsequently re-gasified) if transported by ship. Consequently, the regional geography that links producers-exporters and buyers still prevails over a more global network of transport routes. For instance, Russia (the exporter) and the European Union (the importer) are tightly linked by the fact that an extended network of gas pipelines exist between the Russian Federation and Eastern, Central and Western Europe.
Nevertheless, the idea of a gas cartel resembling O.P.E.C. cannot be dismissed. Russian, Iranian, and Qatari denials of such plans can be interpreted as a series of declarations aimed at easing U.S. and European concerns over the eventual creation of a "gas O.P.E.C." As usual in political and strategic issues, actions are far more important than words. In spite of such denials, Russia, Iran, Qatar, Venezuela and the other G.E.C.F. members are evaluating the pros and cons of setting up the gas cartel.
Not all powers that host huge quantities of natural gas are major gas exporters. Iran and Venezuela, for instance, lack the investment and technology to exploit their natural gas resources fully. Russia is by far the world giant in natural gas production and exports, as it holds 47.8 billion cubic meters of gas reserves (the largest amount globally) and controls 21.6 percent of the world's natural gas exports. On the contrary, Iran, despite its 26.7 billion cubic meters of gas reserves, only counts for 3.1 percent of world exports.
Since Russia's energy giant Gazprom is rapidly becoming Europe's dominant natural gas operator, Moscow is interested in augmenting its political and economic influence on those countries that may provide Europe with an alternative. As such, Gazprom quickly moved to secure alliances with Algeria's national champion Sonatrach (in 2006) and with Turkmenistan's national energy sector (in 2006, before President Saparmurat Niyazov's death), and Moscow is now eying Qatar, Iran, and Venezuela as potential partners for a newly structured gas suppliers organization.
The events of the last few years, which saw Russia consolidating and securing control over its huge gas reserves before moving aggressively toward market domination in Europe and parts of Asia, suggest that Moscow is willing to co-opt its main Eurasian competitors in a sort of "soft monopoly."
Algeria's energy minister, Chakib Khelil, said after the Doha meeting that "in the long term, we are moving toward a gas O.P.E.C.," while the U.A.E.'s energy minister, Mohamed Bin Dhaen al-Hamli, declared that "the time of cheap gas is a matter of the past."
Moscow still denies that it wants to build a gas cartel resembling O.P.E.C. It is far from clear, also, if Qatar and the U.A.E. would join an organization that would be strongly opposed by the United States and its allies, at a time when instability in the Middle East makes Washington a needed security supplier for the small energy-rich Gulf monarchies. As a consequence, the birth of a gas O.P.E.C. is not certain.
Regardless, its potential effects upon European energy security are already visible. Europe is still lacking a common energy strategy, and its enhancement -- which is one of the German E.U. presidency's priorities -- is still too slow to be effective. The result is that Russia could succeed in co-opting its main competitors in natural gas markets before Europe is able to actually implement a strong diversification strategy.
The bottom line is that European powers are rethinking their nuclear power policies. Civil nuclear power has many new supporters in Europe, but the memory of the disastrous Chernobyl incident (1986) and the problems linked to nuclear power's dual use (especially at a time of proliferation) makes it difficult to propose a robust investment policy in new nuclear policies in many European countries.
Poland, Lithuania and Estonia, however, announced last week that they are going to jointly upgrade a Lithuanian power plant, as they clearly stated the urgency to ease their energy dependence on Moscow.
Russia may not give birth to a gas O.P.E.C., but it will probably be able to coordinate natural gas supply policies to a certain extent. Brussels will find it hard to implement its needed diversification strategy in an effective way. At the same time, research in solar- or hydrogen-based energy is years away from producing industrially and commercially viable alternatives.
Therefore, strong political trends directly linked to energy security will likely make the revival of nuclear power in Europe unstoppable.
The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of enquiries@pinr.com. PINR reprints do not qualify under Fair-Use Statute Section 107 of the Copyright Act. All comments should be directed to comments@pinr.com.
''Economic Brief: The Implications of a Russia-led Gas Cartel''
ussia, Iran, Qatar, Venezuela, and other members of the Gas Exporting Countries Forum (G.E.C.F.) met in Doha on April 9 amidst Western fears that Moscow may encourage the birth of a "gas O.P.E.C." Western decision-makers fear that such a new organization could give producers of natural gas an advantage over consumers.
Russia (the world's leading producer and exporter of natural gas) as well as Iran and Qatar (the two Middle Eastern powers with the largest gas reserves) have repeatedly denied that a gas cartel is under construction. Moreover, energy analysts agree that the natural gas market is still very different from that of oil, and that a "gas O.P.E.C." would not be easy to establish.
According to the argument, natural gas does not have a global market like oil. For the most part, gas is not traded on the open market (unlike oil), and the majority of contracts between producers and buyers are long-term deals. Hence, gas pricing functions differently than oil pricing.
In addition, natural gas transportation is more dependent on pipelines than is oil, since the former needs to be liquefied (and subsequently re-gasified) if transported by ship. Consequently, the regional geography that links producers-exporters and buyers still prevails over a more global network of transport routes. For instance, Russia (the exporter) and the European Union (the importer) are tightly linked by the fact that an extended network of gas pipelines exist between the Russian Federation and Eastern, Central and Western Europe.
Nevertheless, the idea of a gas cartel resembling O.P.E.C. cannot be dismissed. Russian, Iranian, and Qatari denials of such plans can be interpreted as a series of declarations aimed at easing U.S. and European concerns over the eventual creation of a "gas O.P.E.C." As usual in political and strategic issues, actions are far more important than words. In spite of such denials, Russia, Iran, Qatar, Venezuela and the other G.E.C.F. members are evaluating the pros and cons of setting up the gas cartel.
Not all powers that host huge quantities of natural gas are major gas exporters. Iran and Venezuela, for instance, lack the investment and technology to exploit their natural gas resources fully. Russia is by far the world giant in natural gas production and exports, as it holds 47.8 billion cubic meters of gas reserves (the largest amount globally) and controls 21.6 percent of the world's natural gas exports. On the contrary, Iran, despite its 26.7 billion cubic meters of gas reserves, only counts for 3.1 percent of world exports.
Since Russia's energy giant Gazprom is rapidly becoming Europe's dominant natural gas operator, Moscow is interested in augmenting its political and economic influence on those countries that may provide Europe with an alternative. As such, Gazprom quickly moved to secure alliances with Algeria's national champion Sonatrach (in 2006) and with Turkmenistan's national energy sector (in 2006, before President Saparmurat Niyazov's death), and Moscow is now eying Qatar, Iran, and Venezuela as potential partners for a newly structured gas suppliers organization.
The events of the last few years, which saw Russia consolidating and securing control over its huge gas reserves before moving aggressively toward market domination in Europe and parts of Asia, suggest that Moscow is willing to co-opt its main Eurasian competitors in a sort of "soft monopoly."
Algeria's energy minister, Chakib Khelil, said after the Doha meeting that "in the long term, we are moving toward a gas O.P.E.C.," while the U.A.E.'s energy minister, Mohamed Bin Dhaen al-Hamli, declared that "the time of cheap gas is a matter of the past."
Moscow still denies that it wants to build a gas cartel resembling O.P.E.C. It is far from clear, also, if Qatar and the U.A.E. would join an organization that would be strongly opposed by the United States and its allies, at a time when instability in the Middle East makes Washington a needed security supplier for the small energy-rich Gulf monarchies. As a consequence, the birth of a gas O.P.E.C. is not certain.
Regardless, its potential effects upon European energy security are already visible. Europe is still lacking a common energy strategy, and its enhancement -- which is one of the German E.U. presidency's priorities -- is still too slow to be effective. The result is that Russia could succeed in co-opting its main competitors in natural gas markets before Europe is able to actually implement a strong diversification strategy.
The bottom line is that European powers are rethinking their nuclear power policies. Civil nuclear power has many new supporters in Europe, but the memory of the disastrous Chernobyl incident (1986) and the problems linked to nuclear power's dual use (especially at a time of proliferation) makes it difficult to propose a robust investment policy in new nuclear policies in many European countries.
Poland, Lithuania and Estonia, however, announced last week that they are going to jointly upgrade a Lithuanian power plant, as they clearly stated the urgency to ease their energy dependence on Moscow.
Russia may not give birth to a gas O.P.E.C., but it will probably be able to coordinate natural gas supply policies to a certain extent. Brussels will find it hard to implement its needed diversification strategy in an effective way. At the same time, research in solar- or hydrogen-based energy is years away from producing industrially and commercially viable alternatives.
Therefore, strong political trends directly linked to energy security will likely make the revival of nuclear power in Europe unstoppable.
The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of enquiries@pinr.com. PINR reprints do not qualify under Fair-Use Statute Section 107 of the Copyright Act. All comments should be directed to comments@pinr.com.
