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Russian Elected to Lead Gas Exporting Cartel

The 11 member countries of what has come to be known as a natural gas version of the Organization of Petroleum Exporting Countries (OPEC) appear to be better organized as evidenced by last Wednesday's election of Russia's Leonid Bokhanovsky as the Gas Exporting Countries Forum's (GECF) first secretary general.

Bokhanovsky sits on the management board of Stroytransgaz, a subsidiary of Russian gas giant Gazprom that is involved in the engineering and construction of pipeline systems, oil and gas production facilities, underground gas storage, as well as civil and industrial structures and facilities. The forum was formed in 2001 with the objective to increase coordination and strengthen the collaboration among member countries while also promoting dialogue between gas producers and consumers.

At the GECF meeting last Wednesday in Doha, Qatar, Bokhanovsky said the forum under his lead will promote principles and mechanisms of an international gas market. Alluding to the recent disconnect between the prices of some fossil fuels, the secretary general announced that a study will be conducted on how to maintain the link between natural gas and oil prices in contracts.

According to the Associated Press (AP), Qatar's ruler, Sheikh Hamad bin Khalifa Al Thani, urged the forum to focus on the disconnect and on how to fix it going forward. "I hope this situation will be temporary," he said, according to AP. He also urged the forum to "analyze the reasons which led to this discrepancy between the two prices, and work to establish a link between the prices of gas and prices of oil, to achieve a balance."

Thanks to low demand due to the recession and new drilling technology that allows for the economic recovery of gas from shales, U.S. natural gas storage levels reached a record 3,837 Bcf, which so far has kept natural gas prices well below July 2008's peak of $13.694/MMBtu. This year's high of $6.240 was recorded in early January while prices were still on the decline from last year's run-up. The front-month contract on Friday closed out the regular session at $5.163.

Word of major gas exporting countries forming a gas cartel has sparked protests over the years from gas consuming nations, including the United States, where the House of Representatives passed a nonbinding resolution in 2007 opposing the efforts by major natural gas exporting countries to form a cartel or other mechanism to manipulate the supply of natural gas and its price to the world market (see NGI, July 16, 2007).

While many industry veterans were downplaying the reach and impact of a foreign gas cartel as recently as a year ago, some insiders are starting to take notice (see NGI, Oct. 27, 2008). Jonathan Stern, a professor and director of gas research at the Oxford Institute for Energy Studies, told a Houston audience last Wednesday at the 2009 Deloitte Oil & Gas Conference that he is beginning to take the idea of a Gas OPEC more seriously.

"I keep being asked by journalists, 'is there going to be a Gas OPEC?'" he said. "My feeling is that the forum will become stronger, but they are a long way from having any agreement or power to set prices or volumes. But I do think perhaps I'm a little more bullish on this than I was a couple of years ago. I do think this is an organization we need to pay much more attention to because...we know that cartels form when prices are weak, and that is exactly the situation that I think we're going to be in for the next couple of years."

GECF, whose members include Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Qatar, Nigeria, Russia, Trinidad and Tobago and Venezuela, with Kazakhstan and Norway as observers, has now had nine ministerial meetings.

Bokhanovsky said the forum's goals will be reached through promoting GECF in the international arena by:

Bokhanovsky added that he plans to promote close cooperation among GECF and various international organizations, regional and international energy organizations, and various trade unions. He said his first job will be to draw up an action plan for the 2010-2013 period.

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