This week’s announcement of the world’s major natural gas exporters at a meeting in Doha, Qatar, that they will cooperate in producing and trading of this energy source as well as increasing prices and supplies seems to have sent ripples of alarm to importers. Participants of the Gas Exporting Countries Forum (GECF), which includes Russia, Algeria, Qatar, Iran, Libya, Egypt, Equatorial Guinea, Bolivia, Venezuela, Nigeria, Trinidad and Tobago, and Oman, agreed that the price of gas was too low. Iran’s Oil Minister Rostam Qasemi proposed that GECF could establish the price by synchronizing strategies of the member countries. According to Qatar’s Energy Minister Mohammed Al-Sada, a “fair price for gas would be at par with that of oil.” While there were assurances that GECF would not limit output for its member, unlike the Organization of Petroleum Exporting Countries (OPEC), gas prices were likely to stay linked to OPEC’s crude oil. Importers are concerned about possible influence of GECF on the global gas market.
While there are grounds to be concerned about a rise of a potential OPEC-style natural gas cartel, there are major challenges ahead for any gas cartel due to the complexity of the gas market and the difficulty among producers to effectively coordinate volumes of gas production and prices. Gas is not nearly close to trading of crude oil in the global market and is constrained by pipeline deliveries or liquefied natural gas (LNG) with long-term contracts. Although the GECF member-countries stress cooperation in developing each other’s markets, often they are also competitors.
Besides, some GECF countries may risk losing their valued markets by trying to create a gas cartel. For example, Russia already faces a tough challenge to maintain its presence in the European gas market due to its tainted reputation as a result of its recurring gas wars with Ukraine that left Europe without gas in wintertime on more than one occasion. Russia provides nearly 40 percent of Europe’s gas demand and needs this market as much as the other is dependent on it. To this day, Russia is still in a deadlock with Ukraine over gas prices. As Europe actively seeks to diversify its gas sources from dominant Gazprom, Russia is walking a fine line between pushing for a gas cartel and keeping its lucrative market satisfied. Lastly, a gas producer’s acceptable price might be too high for its customer(s). A good example is Russia again. Recently, Turkey rejected Russian gas because of its high price ($328 per thousand cubic meters in 2010) and signed an agreement with Azerbaijan in October 2011 on a package of gas contracts, which it considers more profitable. There is no guarantee that unified gas prices of GECF would not backfire on their member-states. The likelihood of a global gas cartel is not a near-term possibility.