Russia’s President Vladimir Putin on 1 July urged leaders from the 13-member Gas Exporting Countries Forum (GECF) meeting in the Kremlin to join forces and defend traditional long-term oil-linked gas contracts against spot pricing.
The Kremlin chief defended long-term supply deals under which Russia exports the bulk of its natural gas, saying abandoning them would undermine global energy security.
“What we are talking about, above all, are attempts to dictate economic terms that are unacceptable to producers of gas delivered by pipeline,” Putin said.
“Unfortunately, the advocates of such a policy do not understand that abandoning the fundamental principles of long-term contracts would not only inflict a blow on gas producers but also bring with them significant costs. In the final analysis, this would undermine the energy security of buyers,” Putin said.
Russia hosted the summit rallying the grouping of gas producers to support a price link to more expensive oil and keep gas prices high in the face of a boom in US shale gas production.
High prices are essential for Russian gas monopoly Gazprom’s export business. Gazprom is under pressure from its European customers to amend existing long- term contracts, which tie gas price to oil price and are based on take-or-pay principle.
Putin said Gazprom wouldn’t be able to afford major exploration and pipeline projects if it didn’t sign long-term contracts.
However, other members of the GECF group – led by Qatar – were less sympathetic since they have grabbed market share by supplying cheaper liquefied natural gas (LNG) to Europe.
Konstantin Simonov, head of Russia’s National Energy Security Fund (NESF) in Moscow, told New Europe on 1 July that even though it makes sense for gas exporters to co-operate and avoid gas-to-gas competition that would drive world gas prices down, in reality the forum is not working and there can be no major compromises.
“One of the main problems of this so-called Gas-OPEC is that we have different producers with absolutely different strategies and interests. For example, Russia is the biggest pipeline supplier – we have one strategy and one market; Qatar is the biggest LNG producer; Iran is the biggest gas reserves holder but is not exporting gas – so three main countries, three absolutely different stories and three absolutely different strategies. It’s very difficult to unite them,” Simonov said.
GECF, which covers the world’s 11 leading gas producers, has drawn comparisons with the Organization of the Petroleum Exporting Countries (OPEC) but failed to show the type of cohesion that has made the oil export cartel capable of influencing global markets. Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago and Venezuela are the eleven members of the Gas Exporting Countries Forum.
Simonov noted that the forum could add other possible participants like Turkmenistan. However, he added that relations between Ashgabat and Moscow are bad in the last five years.
He reminded that Putin was disappointed in December 2008 when instead of Saint-Petersburg the GECF head-office moved to the capital of Qatar – Doha city. “Putin was disappointed and, in my opinion, now he doesn’t believe in the success of this story and we see the real problems,” Simonov said.
GECF’s potential rests on the enormous natural gas reserves of its member countries, which account for some 62% of the world’s proven natural gas deposits.
The two-day event in Moscow followed a ministerial meeting of the member states.
Simonov argued that the policy of Qatar is against Russia. “For example, who is the lobbyist for the change of political regime in Syria? Qatar and Saudi Arabia! It’s not a secret they want to build a pipeline through Syria to Turkey and then to Europe. That is why Qatar is our competitor and there will be no compromises,” the head of Russia’s National Energy Security Fund said.