Gas nations seek way out of a price slide

Latest Update: Friday16/4/2010April, 2010, 12:12 AM Doha Time

Some of the world’s biggest gas exporters will next week explore the option of making co-ordinated supply cuts to end the slump in gas prices, but they are still a long way from becoming an Opec-style group.

If the club of gas exporting nations can reach agreement for the first time about co-operating on export volumes, that would nevertheless send a ripple of alarm through consumer countries who have grown used to exploiting divisions among producers.

Energy ministers from the Gas Exporting Countries Forum (GECF) – whose 11 members account for about 70% of the world’s gas reserves – meet in Algeria on Monday under pressure to do something to lift the revenue they earn from gas exports.

Algerian Energy Minister Chakib Khelil, who holds the organisation’s rotating presidency, has said he will propose that member countries do this by agreeing co-ordinated cuts in supply to the spot market in natural gas.

“Definitely in a situation where we have excess supply in the market we need to co-ordinate better among us,” Khelil, whose country supplies about 20% of Europe’s gas, had told Reuters earlier.

“Why should we go trying to get a bigger market share if the result is lowering prices and lowering revenues of each one of the members?”

The forum has been dismissed by many energy analysts as a talking shop that cannot hope to emulate the power of the Organisation of the Petroleum Exporting Countries.

It has made no attempt to coordinate supply policy before and it was only at the end of last year that the forum chose a Secretary-General. In any case, the gas market lends itself to coordinated action much less well than the market in crude.

Most natural gas is delivered under long-term contracts so, unlike Opec members, gas producers do not have the flexibility to influence prices by adjusting output.

But some industry analysts say the pain from the low prices – caused by a combination of the global economic downturn and new gas coming on stream in the US from unconventional sources – could force the forum to grow teeth.

“The prices are coming down,” said Paul Stevens, senior energy research fellow at the Chatham House think-tank.

“Now in those circumstances I can quite imagine that certainly the Russians and the Algerians and the Qataris are going to sit down in a room to see what the possibilities might be to try and do something about this”, Stevens  said

The question though is whether the ministers who gather in the Algerian coastal city of Oran will want to co-operate with the same countries they compete with for sales, especially in the lucrative European market.

Russia, the world’s largest gas exporter, has said it broadly supports Algeria’s proposal on gas supplies.

“I believe that world gas producers ... should collectively discuss the situation and think about defending their interests,” Energy Minister Sergei Shmatko said last week.

But Qatar, the world’s largest exporter of liquefied natural gas (LNG), could stall moves towards co-ordinated supply cuts. It has been diverting its gas cargoes away from the oversupplied US to win new customers in Europe, a market traditionally dominated by Russia, Norway and Algeria.

The Gulf state said this week he had held no talks with other major gas producers about cutting output.

“This (Algerian) proposal will be very unpopular with the majority of the forum, first of all Qatar,” said Mikhail Korchemkin of think tank East European Gas Analysis.

In the absence of consensus about supply cuts, he said he expected the forum’s meeting to produce “general words on co-ordination without any specific meaning.”

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