More Reason for Europe to be Concerned
Russia, Iran and Qatar are moving to create an OPEC-like consortium for natural gas. While the Qatar and Russian representatives say the “gas triorka” is not intended to set global prices for natural gas, the Iranian representative to the group, Oil Minister Gholamhossein Nozari, has said, “There is a demand to form this gas OPEC and there is a consensus to set up gas OPEC”, with the obvious intention of trying to control global natural gas prices in a manner similar to the oil group.
The three countries control more than half the world’s reserves of natural gas and Russia is Europe’s biggest supplier of imported gas. Additionally, Qatar is the fourth largest exporter of LNG and Russia is continuing to build out new LNG export facilities in order to increase their capabilities. Iran has recently backed off large development of LNG facilities due to economic sanctions; however, they are working with the Russian gas giant, Gazprom, to expand their export capabilities via pipeline.
Europe clearly has the most to lose if a true market cartel in natural gas develops. Russia currently supplies about a quarter of Europe’s gas today and is projected to supply about a third of the continent’s needs within the next decade. Additionally, while the Middle East countries currently export little LNG to Europe, those exports are expected to rise as gas demand increases and Europe’s native production declines. Given their dependence on imported gas, Europe has tremendous exposure should such a cartel wish to apply economic or political pressure.
The US is currently less exposed. With the exception of long term purchase agreements, LNG imports into the US are basically dead and will remain so as long as North American gas prices remain comparatively low to those of the rest of the world (where longterm crude indexed contracts keep LNG prices fairly high). However, should the US consumption require significant new LNG supplies in the future (as many forecasts indicate), a gas cartel of made up of the likes of Russia and Iran, could be very bad news.