Eyes were focused on Doha early this week as gas-producing countries met.
Describing the aims of the Gas Exporting Countries Forum (GECF), Qatari Energy Minister Abdullah Al-Attiyah made it clear the discussions were aimed at creating a stable world market for natural gas. “We’re just here to consider our interests,” he told the reporters.
In the intervening five decades things have changed dramatically. While the 1960 Baghdad meeting had gone almost unnoticed, the Doha moot, in contrast, was in headlines even before it was set into motion.
Incidentally at the Doha meeting, the GECF announced setting up a high-level study group, led by Moscow, to examine ways to enhance coordination among the producers and study the prevalent gas market prices. Russian Energy Minister Viktor Khristenko said “we agreed to launch a joint study on this issue (pricing of gas), and Russia is prepared to be the one who organized such a study,” he added, whose recommendations would be submitted at the next GECF meeting in 2008 to be hosted by Moscow.
Several ministers attending the forum in Doha emphatically underlined the gas prices were too cheap, compared with oil, especially in view of the soaring costs of bringing on new production. Algerian Energy Minister Chakib Khelil emphasized the most important issue facing gas exporters was pricing as “the price of gas does not reflect its real value.”
Gas pricing is different from crude pricing in many ways. Gas is often piped to the markets, entailing huge fixed costs. In contrast oil is traded on an exchange that constantly updates the market price based on supply, demand and market perceptions. Because of the piping and logistic issues, most natural gas is sold under tight contracts that allow buyers to lock in prices that could extend up to 25 years.
There also seems some emphasis on linking global gas prices with crude market prices. This could significantly impact the way gas is priced today in the international markets. Some of the gas producers have been endeavoring to link gas market prices to the prevalent crude prices. This has faced with resistance so far.
The advent of liquefied natural gas (LNG) has already transformed the gas pricing landscape. LNG is gas cooled to liquid form so it can be shipped to various markets and is far more flexible. However, LNG is still a small fraction of the entire gas market.
The Gas Exporting Countries Forum brings together countries controlling almost 73 percent of world gas reserves, including Algeria, Brunei, Indonesia, Iran, Malaysia, Nigeria, Oman, Qatar, Russia and Turkmenistan. Norway is not a member of the group, yet attended the Doha session as an observer.
Europe’s two main natural gas suppliers, Gazprom of Russia and Algeria’s Sonatrach, signed a partnership accord last August, enhancing Russian control on supplies to Europe. Russian gas giant Gazprom and Algeria’s Sonatrach are two of Europe’s main gas suppliers.
Venezuelan Energy Minister Rafael Ramirez gave further fillip to the pricing issue when he told Venezuela’s state-run Bolivarian News Agency earlier in the week that his government was discussing the creation of a high-level group on gas pricing with fellow natural gas-producing countries like Bolivia.
Russia’s growing clout as an energy supplier was demonstrated this year when it stopped pumping oil to Belarus and last year when it shut off gas to Ukraine. In both cases, European dependency was painfully exposed.
According to the US Energy Information Administration, natural gas supplies about 23 percent of the world’s energy, third largest energy source behind oil at 36 percent and coal at 26 percent.
In the ultimate analysis, one thing is certain. Gas producers are endeavoring to put their house in order. And this would have ramifications for the industry, whether one likes it or not!
