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U.S. Energy Secretary Bodman Calls Natural Gas Cartel a Bad Idea

Experts say manipulation of gas market will not help producers or consumers

U.S. Energy Secretary Samuel Bodman has dismissed an international attempt to form a cartel designed to give natural gas producers greater control over gas markets.

"Initiatives new or old, which seek to control the flow of energy supplies to the market and circumvent the role of the market to set prices, are contrary to the long-term interests of both producers and consumers," he said in a February 14 speech at an energy conference in Houston.

Bodman said the United States must take steps to modernize and expand the infrastructure for liquefied natural gas (LNG) - natural gas that is cooled into liquid form to be transported in tankers. Those steps would help diversify the United States' supply base, he said

Bodman did not identify what specific "initiatives" he had in mind, but his comment generally was interpreted in the media as a sign of displeasure with Russia's efforts to achieve a "greater cooperation" among gas-producing countries. Bodman's speech coincided with Russian President Vladimir Putin's trip to the Middle East. Putin has acknowledged that an "OPEC-style" cartel for natural gas was an option being considered, according to news reports.

In Doha, Qatar, Putin and Qatari ruler Emir Sheik Hamad bin Khalifa Al Thani said February 12 that gas producers should cooperate more closely. Sheik Hamad said, however, that he has some doubts about creating a cartel designed to influence natural gas markets in a similar way to that in which the Organization of Petroleum Exporting Countries (OPEC) control crude oil markets. Closer cooperation among gas-producing countries is expected to be explored further at an April conference in Doha.

A natural gas cartel was proposed in January by Iran, which holds the world's second-largest natural gas reserves after Russia. Russia also has explored the idea with Algeria since the two countries signed, in August 2006, a memorandum of understanding that calls for coordinated natural gas prices, according to news reports.

Energy Commissioner Andris Piebalgs and other leaders of the European Union (EU), which depends on Russia for 44 percent of its natural gas supplies, have expressed concern about efforts to create a natural gas cartel, according to news sources.

Experts Find Creation of Cartel Unlikely

Energy experts say that the creation of such a cartel is possible but not probable.

It is "a long shot," one expert told USINFO. Qatar, for example, would pay a huge political price for joining any such effort because its relations with the United States would suffer as a result, the energy expert, who declined to be identified, said.

The expert said that Russia, Algeria and Qatar, as natural gas exporters, have interests that are more often competing than common. This is the case in Europe, where Russia dominates the natural gas market and companies from the other countries want to increase their market share. This is also true in the LNG sector of the global gas market where Algeria and Qatar are major players and Russia wants to become one

Russia, Qatar and Iran and 12 other gas-producing countries established a cooperative group in 2001. But despite the fact that its members collectively control 73 percent of the world's natural gas reserves and 41 percent of production, the organization has not made much progress toward greater cooperation.

Sara Banaszak of the American Petroleum Institute said that even if such a cartel was created by major natural gas producers it would be unlikely to influence natural gas markets to the extent that OPEC influences crude oil markets.

Sufficient natural gas reserves will continue to be well dispersed around the world for the next 20 years to 30 years, she told USINFO. So companies can respond to any attempts to raise gas prices sharply by tapping those reserves, Banaszak said.

Also, she said, because natural gas is not traded as heavily as oil, the natural gas market is more difficult to manage than the oil market. In addition, most natural gas is sold through long-term contracts over which a cartel would have little influence, she added.

Moreover, Banaszak said, economies such as the EU, Japan, Korea and Taiwan that rely heavily on natural gas imports use it primarily for power generation. If natural gas becomes too expensive, those economies could switch to other fuels to produce electricity, she said.

In his February 14 speech, Bodman also warned against other instances of "manipulation of hydrocarbons" by countries with large energy resources. He specifically cited practices such as limiting access to resources for commercialization, pressuring companies to renegotiate contracts, expropriating or renationalizing assets, cutting off energy supplies and subsidizing petroleum products.

He said that an "unfettered market is the most effective and efficient way to determine price and allocate resources based on supply and demand."

The full text of Bodman's remarks as prepared for delivery is available on the Energy Department Web site.

Source: U.S. Department of State