CARTEL IDEOLOGY IN GAS SECTOR FEEDS ON CONSUMER FEAR


25.01.07
MOSCOW. (Igor Tomberg for RIA Novosti)

The use of the new trendy term "petroeconomic" in Davos can be said to be a sign of our times. Delegates of the World Economic Forum have come together to discuss the ensuing "Shifting Power Equation." All this once again highlights the growing dependence of the global economy on hydrocarbons. Energy discussions are dominated by alarmist sentiments. It has become customary for European and American mass media to savor energy threats, which in turn escalates tensions in the information and political situation around energy security.

A good example is the West's serious concern caused by Russian Industry and Energy Minister Viktor Khristenko's recent trip to Algeria on invitation of his Algerian counterpart Chakib Khelil.

During the visit, Russia and Algeria signed a memorandum that laid out the achievements and outlook of bilateral mining and energy cooperation. They also signed contracts on hydrocarbon fields development and mining, and agreed to cooperate in power generation, energy efficiency and energy saving. Algeria chose four out of the eight projects proposed by Gazprom, Russia's state-controlled gas giant.

Russia and Algeria are ideal partners: without competing with each other, they have covered almost entire Europe in their gas pipelines and tanker deliveries. Algeria meets over 10% of Europe's gas demand. Together with Gazprom, it controls up to 40% of the European gas market. However, it supplies gas mainly to the Mediterranean, whereas Russia delivers fuel to northern Europe.

The parties do not conceal that they have interests in third countries. The Russian monopoly is interested in Algeria's neighbors: Libya, Mauritania, Mali and some Central African countries, where Gazprom's Algerian analogue, Sonatrach, has been operating for some time.

If this cooperation begins, it will be restricted to join geological exploration at first. Gazprom would also like Algeria's help to enter southern European markets Spain, Portugal and southern Italy. In exchange, it promises Sonatrach help in northern Europe, where Gazprom has traditionally held strong positions. This could be done in the form of goods exchange operations, when Gazprom would supply gas under Sonatrach's contract in the north and receive the same amount of gas for its supply in the south. This will inevitably require coordination in marketing and price setting.

These details of bilateral cooperation are especially alarming for European and American analysts. It is easy to understand the U.S.: the positions of its oil and gas majors in Algeria have recently weakened.

Rumors have been circulating about the shutdown of U.S.-Algerian company Brown Roots & Condor. There is news that ConocoPhillips intends to withdraw from Algeria and sell its stake in the country bought from Burlington Resources in December 2005. Anadarko Group left the country following the Algerian government's decision to allow Sonatrach to keep 51% in oil and gas deposits.

Naturally, the West is concerned about the global trend toward weakening of its oil and gas majors in the production areas. In the past, consumer countries and their companies controlled energy production abroad, but now they are being ousted by local monopolies and by rivals from China, India, Venezuela, Indonesia and Russia.

Clearly, this scenario contradicts the American-European strategic planning. Washington and Brussels view breakthroughs of companies from emerging countries as a threat to the interests of the golden billion in some or other region. The West is especially worried about Russia's intention to set up a global gas cartel comprising Algeria, Qatar, Libya, Central Asia and Iran.

So far there has been no talk about the foundation of a gas OPEC. Moreover, gas producing countries have denied rumors that they are looking to set up a cartel.

Russia and Algeria believe that this initiative is premature, said participants in the Russian-Algerian talks. Khelil explained: "It is too early and too difficult to discuss the set up of a gas OPEC. Perhaps, in 20-30 years, when swap and LNG markets have appeared, the market will be dynamic and look like the oil market."

Remarkably, the EU leadership is doing everything to make the gas market more similar to the oil market: swaps, bans on long-term contracts, etc. Implementing its gas directives, Europe is pushing gas producing countries to set up a cartel. The EU speaks openly about the need to draft a single energy strategy of gas consuming countries. So moves on the part of supplying states are expected, and the drive of Russia, Algeria and Iran to establish OPEC's gas analogue makes perfect sense.

The first practical steps in this direction are already being taken: the Russian and Iranian leaders have discussed gas asset swaps at their meeting. Asset swaps with Algeria have already become established practice. This could signal that Moscow is trying to strengthen ties with its key potential rivals on the European market. After all, everyone understands that Iran's huge reserves (26.9 trillion cu m) will sooner or later come to Europe.

Perhaps, coordinated positions of Moscow, Algiers and Tehran will emerge at the next forum of gas exporters to be held in Qatar in April. It is easy to predict that the cartel ideology would increase as consumer countries press for the right to unite under the same principles.

Dr. Igor Tomberg is senior research fellow at the Center of Energy Research, Institute of World Economy and International Relations, Russian Academy of Sciences.
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