International
Gas Forum Still Lacks OPEC Sway
By Reuters 29/6/09
Jun 29, 2009 - 8:32:47 AM

The global economic downturn and its impact on gas consumption will be high on the agenda when ministers from a club of countries holding more than three-quarters of the world's gas reserves meet in Doha.

"At current prices, I don't know if investment in gas will continue," said Mohammad Ali Khatibi, Iran's representative to the Gas Exporting Countries Forum.

"There is no return for investors. We will review the market and see what we can do to help stability."

Weak demand and sagging prices in some markets may give impetus to GECF moves to increase cooperation, said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies.

"Gas exporters have never seen demand drop by as much as it is dropping this year," he said. "Cartels are only effective when prices are low. When prices are high, there is no need to form a cartel."

Previous meetings of the GECF have caused consternation among consumers, who fear that the group may develop the same influence over gas markets that the Organization of the Petroleum Exporting Countries has over oil.

The body's 11 members in December signed a charter, yet to be made public, aimed at transforming the group into a formal organization from an informal talking shop. In Qatar, the group is expected to choose a secretary-general.

The GECF may eventually gain sway over prices, but the gas and crude trades are so different and the forum so immature that there is little chance of members working together for now.

"We should not be dismissive of this organization," Stern said. "But we should not expect it to be a price and volume setter any time soon."

OPEC was formed in 1960 and took about a decade to become a force in global oil markets. The GECF, a loose group of 11 of the world's gas powers, is at a similar stage of development as OPEC was at inception, analysts said.

Most gas is delivered through pipelines on long-term contracts, physically tying suppliers to their customers, while oil trades globally and moves on tankers to the highest bidder.

A spot market for tankers of liquefied natural gas is growing and would likely eventually form a stronger link between regions. But for now, the gas market remains fragmented and prices vary by region, limiting the potential for any concerted action to change fundamentals globally.

"The very idea of a 'gas OPEC' would be understandable only if they were talking about LNG," said Maria Radina, oil and gas analyst at UBS in Moscow. "But you can't do it with gas transported in pipelines. Anyone can put oil in a bucket and keep it there until prices rise. But with gas you simply cannot do that."

Europe is the market over which the GECF holds the most potential power. Forum members Russia, Algeria and Libya together contribute about 36 percent of Europe's gas, according to consultants Wood Mackenzie.

But forum members are all competing for Europe's market, so working together there might be tough, especially with demand for gas ebbing because of the economic crisis, analysts said.

"Nobody wants to lose the market," said Mikhail Korchemkin, from think tank East European Gas Analysis. "Gazprom's exports to Europe dropped 39 percent in the first quarter, while Qatar exported 20 percent more than a year ago. I do not think Qatar wants to reverse that trend. Therefore, a gas OPEC has no chance."

Sagging demand and oversupply of oil and gas will likely make for a buyer's market for the next few years. While that may encourage cooperation, it could also increase competition among sellers.

"Cooperation is much more challenging in a market that tends to favor buyers," said Noel Tomnay, head of global gas at consultants Wood Mackenzie. "I think the GECF is a genuine force for the future, but it's baby steps at the moment."


Source: Ocnus.net 2009