Russia, Iran, Qatar discuss forming natgas cartel

[Guest Nasser Karimi]

Russia, Iran, and Qatar made the first serious moves Tuesday toward forming an OPEC-style cartel on natural gas, raising concerns that Moscow could boost its influence over energy markets spanning from Europe to South Asia.

 

Such an alliance would have little direct impact on the United States, which imports virtually no natural gas from Russia or the other nations.

 

But Washington and Western allies worry that closer strategic ties between Russia and Iran could hinder efforts to isolate Tehran over its nuclear ambitions. In addition, the United States opposes a proposed Iranian gas pipeline to Pakistan and India, key allies.

 

In Europe -- which counts on Russia for nearly half of its natural gas imports -- any cartel controlled by Moscow poses a threat to supply and pricing.

 

Russia, which most recently came into confrontation with the West over its five-day war with Georgia in August, has been accused of using its hold on energy supplies to bully its neighbors, particularly Ukraine.

 

Moscow cut natural gas exports to the former Soviet republic over a price dispute during the dead of winter in 2006 -- a cutoff that caused disruptions to European nations further down the pipeline.

 

The 27-nation European Union expressed strong opposition to any natural gas cartel Tuesday, with an EU spokesman, Ferran Tarradellas Espuny, saying: "The European Commission feels that energy supplies have to be sold in a free market."

 

Together Russia, Qatar, and Iran account for nearly a third of world natural gas exports -- the vast majority supplied by Russia -- according to U.S. government statistics. The three hold some 60 percent of world gas reserves, according to Russia's state-controlled energy company Gazprom.

 

The United States -- the world's largest consumer of oil and gas -- produces most of its natural gas needs at home, importing only from Canada and Mexico.

 

Russia is also a major oil producer, though not an OPEC member. For its part, Iran, in its standoff with world powers over its nuclear program, has threatened to choke off oil shipments through the Persian Gulf if it is attacked.

 

A gas cartel could extend both countries' reach in energy and politics, particularly if oil prices bounce back to the highs seen earlier this year, prompting renewed interest in cleaner-burning natural gas and other alternative fuels.

 

Tuesday's gathering in Tehran appeared to be the most significant step toward the formation of such a group since Iran's supreme leader, Ayatollah Ali Khamenei, first raised the idea in January 2007.

 

"Big decisions were made," said Iranian Oil Minister Gholam Hossein Nozari. His Qatari counterpart, Abdulla Bin Hamad al-Attiya, said at least two more meetings were needed to finalize an accord, according to the Iranian Oil Ministry's Web site. No timeframe was given.

 

Calling the grouping the "big gas troika," the chief executive of Russia's state-controlled energy company Gazprom, Alexei Miller, said it would meet three or four times a year.

 

"We are consolidating the largest gas reserves in the world, the general strategic interests and -- what is very important -- the high potential for cooperation on three-party projects," Miller said.

 

Already, Russia has built Iran's first nuclear reactor, which Iranian officials say could begin operating later this year. The West fears Iran's nuclear program could lead to development of atomic weapons; Iran insists it is only for peaceful energy production.

 

Experts say a natural gas cartel would not have the same influence on prices as OPEC has on oil since natural gas is not subject to the same severe fluctuations.

 

"There's always some worry when these guys get together that they'll try to replicate OPEC, but they know that's not doable," said Robert Ebel, senior adviser to the Energy and National Security Project at the Center for Strategic and International Studies in Washington. "They can try to get more control over gas, but it's not OPEC."

 

That's because gas, unlike oil, is traded on much longer-term contracts, of as much as 25 years.

 

"Gas is a regional commodity and oil is an international commodity," Ebel said. "If you want to buy a tanker of crude, you can buy one at today's prices. When you want to build a natural gas pipeline, you have to have two things: enough gas to justify building a pipeline that will operate for 25 years, and ... customers that will agree to buy that gas at a range of prices for 25 years."

 

Still, a natural gas cartel could wield some influence on world prices, particularly in Europe and Asia, said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

 

"To try to maneuver the supply ... makes perfect sense," he said. "Just because it doesn't have the clout of oil, it's still in their best interest to deliver natural gas where it needs to go and manage supply in order to help manage the price."

 

Liquefied natural gas -- a rapidly growing segment of the market -- could be traded as a commodity similar to oil at some point in the future, and the move by Russia, Iran and Qatar appears to anticipate that, said Konstantin Batunin, an analyst with Moscow's Alfa Bank.

 

Gazprom, the Russian state energy company, is looking to make the U.S. one of its prime markets for liquefied natural gas, and sent senior executives to Alaska last week to discuss energy projects.

[Guest nuclear oil]

Russia has put itself in a position to negotiate an agreement with Iran to cartelize the global supply of natural gas. Once this happens, the lion’s share of oil and gas in the Middle East and Eurasia will be locked into the OPEC/Russia-Iran duopoly. Russia’s dominant position in Central Asia will also allow Moscow to alleviate pressure on its own energy market and to target liquid natural gas for monopoly control, consolidating its domination of the EU gas market.

 

The resulting revenue from prices set in Moscow and Tehran ,may prove much greater in the long run than analysts have been predicting, allowing both Russia and Iran to continue to modernize their militaries.