Comments: A Gas OPEC?
Authors: Donnelly John 
Published: February 2015

Nothing scares consuming countries like talk of a new cartel. As natural gas rises in prominence in future global hydrocarbons scenarios, industrialized nations—in particular the United States, Europe, and Asia—are warily eyeing the on-again, off-again discussions by major gas producers to form an exporters' organization based on the OPEC model.
The sixth ministerial meeting of the Gas Exporting Countries Forum was held in Doha last month with representatives from the 14 full-member countries, including Iran, Russia, Qatar, Algeria, Bolivia, Brunei, Egypt, Indonesia, Libya, Malaysia, Nigeria, Trinidad, the United Arab Emirates, and Venezuela, as well as observer countries Norway and Equatorial Guinea. The representatives discussed issues such as trade, production, technology, transportation, and other pertinent issues. But it was the run-up to the meeting, with rumors swirling that a gas OPEC would be formed at the gathering, that got everyone's attention.
Iran publicly suggested formation of a gas cartel in January, and past statements from Russian and Venezuelan officials seemed to back the idea, at least in theory. Leaders of the European Union, which is heavily dependent on Russian gas supplies, worried aloud about the formation of a gas cartel. And U.S. Energy Secretary Samuel Bodman criticized the idea. An "unfettered market is the most effective and efficient way to determine price and allocate resources based on supply and demand," he said at an industry gathering in Houston. Producers, however, are more interested in the current and future price of their commodity rather than in an efficient market.
OPEC appeared to lose its handle on managing the global price of oil in the late 1990s, as prices for major pricing benchmarks West Texas Intermediate, Brent, and Dubai fell into the low teens. But increasing global demand and better cohesion among OPEC members this decade have paid off for OPEC-member countries. When prices began to fall late last year, OPEC production cuts stabilized prices.
Whether a gas OPEC would work is another matter. The five largest exporters that would make up the nucleus of such a group—Russia, Algeria, Iran, Venezuela, and Qatar—account for 60% of the world's gas reserves. But that clout may be diminished by two things: gas is not as tradable and transportable as oil, and gas consumers have more alternatives at their disposal.
Much of the world's gas supply today is tied up in long-term contracts—a commitment between buyers and sellers to supply gas at a defined location at a certain price—limiting a seller's ability to constrain supply and affect prices. And much of global gas demand comes from the power sector, which can substitute fuel oil, coal, or nuclear energy if gas use became uneconomic. Most gas moves by pipeline, although the growth of liquefied natural gas has increased the amount of gas being transported by ship. The majority of oil moves by tanker, making oil supplies flexible, widely available, and capacity unconstrained.
While an association of gas producers/exporters that attempted to set a floor for gas prices might be less influential than OPEC, it still would have considerable muscle. One unfortunate result might be the limiting of opportunities for international oil and gas companies in gas-producing countries while also reducing technology transfer, a potentially lose-lose situation.