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23 Dec, 2008 21:10

Gas producers forum takes step towards greater market influence

The 7th meeting of the Forum of Gas Exporting Countries concluded with Energy ministers from member states adopting an organizational charter and selecting Qatar as the location for its headquarters.

11 countries including top global producers Russia, Qatar, Iran and Venezuela formed a new body on Tuesday that many were quick to dab gas OPEC.

The new group will monitor output and prices but, unlike OPEC, it won’t set production quotas to manage the balance between supply and demand. Some even say it will benefit gas consuming nations, with Russian Energy Minister Sergey Shmatko keen to distance the new organisation from its oil production counterpart.

“We want to once again stress that there is no direct association of the Gas Exporting Countries Forum with OPEC. Therefore we will not talk today about agreements on gas extraction. Extraction is the result of long-term work and this is the main difference from other hydrocarbon markets.”

The nature of the gas market, where the prices are fixed in long-term contracts that take an average annual oil price into account, means exporting countries need to join forces to optimize their risks. That’s according to Gazprom’s deputy CEO, Aleksandr Medvedev.

“For the last seven years gas market was the market of buyers due to over production. One of the first topics that new organization will discuss is how to set gas prices. Consumers insist that gas price should remain linked with average annual oil price. It adds predictability and make gas price less volatile.”

Yet the new body is not about manipulating prices. Rather, UniCredit Aton Analyst, Pavel Sorokin, says, about political influence that will help counteract pressure from consuming nations.

“The main objective of this gas OPEC, at this point, is to create some political force that will be reckoned with by consumers. Because consumers act in a kind of cartel form as well, because it's consumption spread across a number of markets – the States, Europe – and those consumer regions are mainly tied to pipelines, or to certain gas hubs. And, with the creation of this gas OPEC, there can be a split in the spheres of influence between its members. There can be some coordination for the signing of future contracts.”

Experts agree the wider use of LNG would eventually form a spot market for the fuel but that’s unlikely to happen over the next decade. But with Russian Prime Minister, Vladimir Putin’s declaration, while chairing the meeting, that the era of ‘cheap gas’ is at an end, the activities of the forum will be watched carefully by consumers worldwide.