Knowledge Problem

Any Reason to Fear an International Gas Producers Cartel?

Michael Giberson

Reuters reports from Moscow:

MOSCOW — The world’s top gas exporting nations will set up a formal organization at a December summit in Moscow, a Russian official said on Wednesday, but denied the new body will seek to copy OPEC’s production quotas.

“No one is planning to regulate gas production volumes. It is a crazy idea,” Deputy Energy Minister Anatoly Yanovsky told reporters.

He said energy ministers from 16 gas exporting nations would meet in Moscow on Dec. 23, as planned, to sign a charter for the new organization….

The idea of an OPEC-style gas group has sent a nervous tremor through the European Union and the United States, which have argued the market should set gas prices. Both have warned the cartel could pose a serious danger to global energy.

Even assuming that the Gas Exporting Countries Forum becomes a formal cartel, the U.S. should not be affected much in plausible scenarios, at least for many years. While the EIA has forecast increasing LNG imports over the next 20 years, the forecast may not adequately reflect increased access to domestic supplies. It is likely that increased production from domestic resources – particularly gas shale developments – will keep prices below current world LNG price levels. If a GECF successor organization manages to coordinate higher world LNG prices, at most there will be a slight price consequence in the U.S. which will promote additional domestic gas development.

Longer term, on the assumption that GECF turns itself into an effective cartel (and that may not be a plausible assumption), the significance for the U.S. is that it becomes more likely that an Alaskan gas pipeline actually gets built.

Europe may reasonably find the topic a bit more troublesome, since LNG provides a significant alternative to natural gas piped in from Russia.

On a related note, the Houston Chronicle reports, “OPEC’s divisions manifest as oil prices plummet.”