Steadily and stealthily, a natural gas cartel is emerging. The
Gas Exporting Countries' Forum is the brainchild of some of the
world's least democratic countries-Iran, Qatar, Hugo Chavez's
Venezuela-and it took a step toward emergence at a meeting in Doha,
Qatar, on April 9. The cartel is led by those who stand to
benefit most from its future geopolitical muscle: Russia and Iran,
and specifically President Vladimir Putin and Iran's Supreme Leader
Ayatollah Ali Khamenei. The United States should create a global
coalition of energy consumers to oppose oil and gas cartels and to
bring market principles to the natural gas industry. The U.S.
should also liberalize its own regulations to allow energy
exploration in the Arctic, in the Rocky Mountains, and along the
Pacific and Atlantic Continental shelves.
Russia's Global Gas Strategy
Moscow is playing a complex and sophisticated game, one that is
likely to maximize its advantages as the leading gas producer with
the largest reserves on the planet.
First, Russia's approach is gradualist. Moscow has never
been openly enthusiastic about a gas cartel but has waited for an
opportunity to launch one. Viktor Khristenko, Russia's Vice Premier
in charge of energy, rejected the idea just days before President
Putin called a gas OPEC "an interesting idea" during his February
2007 visit to Qatar. This past week, however, in Doha, Khristenko
said, "We have not, do not have, and will not have the goal of
organizing an alliance against anyone."
The message in the Russian media after the summit was that no
documents were signed to create a gas cartel-a useful message for
Gazprom, the Russian state-owned gas monopoly. But careful
examination of the official announcement and media reports reveals
that there is reason for concern.
Second, Russia's approach is stealthy. Instead of
announcing the cartel prematurely, and spooking consumer countries,
it is quietly putting the component parts into place. In Doha,
Russia initiated the creation of a "High Level Group" that will
"research" the pricing of gas and develop methodologies using
commonly accepted gas pricing models. Conveniently, Russia will
staff this group.
Third, Russia is able to appear reasonable. The immediate
price-regulating function of the emerging cartel is supported by
those Latin American countries that want to dispense with market
principles in the gas trade: Venezuela, Bolivia and Argentina. With
Iran and Venezuela (supported by Bolivia and Argentina) applying
their OPEC-honed instincts to gas and demanding price regulation,
Russia can afford to stand aside and let others do the talking.
Nevertheless, an unnamed "high ranking member of the Russian
delegation" to Doha told RIA Novosti that "as the gas market undergoes globalization, certainly
such an organization [a gas cartel] will appear and is
Fourth, and most importantly, a cartel by any other name
is still a cartel. Members of the GECF agreed to discuss dividing
up the consumer markets between them, particularly in Europe, where
Russia and Algeria are major players. For example, if Russia agrees
not to challenge Algeria's position in Spain, Algeria will steer
clear of Germany. This will clearly challenge the European Union's
energy liberalization and gas deregulation policy, which is
scheduled to take effect on July 1.
The group members plan to "reach strategic understandings" on
export volumes, schedules of deliveries, and the construction of
new pipelines. They also plan to jointly explore and develop gas
fields and coordinate start-ups and production schedules. To
continue their work, members will gather for their next annual
meeting in Moscow and plan to create a permanent secretariat.
Despite protestations to the contrary, this has all the
characteristics of a cartel in the making.
Oil is a global commodity, but natural gas is not. When it is
piped, prices are set as far as 15 to 20 years in advance through
long-term contracts. However, liquid natural gas (LNG) is rapidly
becoming a worldwide commodity.
By 2010, LNG's share of the world's total gas consumption will
double. Thus, price gouging through production quota manipulation
may come faster than many experts expect if the GECF becomes a new
OPEC and if consumer nations do not unite and flex their muscle.
Moreover, Russia and Iran are interested in increasing their
geopolitical leverage against the EU in areas which often have
little to do with energy.
Major gas producers share another characteristic. Qatar,
Turkmenistan, Brunei, and Venezuela, to name just a few, have one
feature in common: a democracy deficit. Just like OPEC, the gas
cartel will be a formidable global force that can be used to
oppose, challenge, and possibly weaken market-based democracies
through high prices and wealth transfer. Such a cartel may cut
deals with similarly undemocratic large-scale consumers, while
forcing the West to pay full price.
Coordinated Global Action Needed
The Bush Administration barely reacted to the Doha meeting.
Ileana Ros-Lehtinen (R-FL), Ranking Member of the House Foreign
Affairs Committee, wrote to the Secretary of State that the
establishment of a gas OPEC would be a "major and long-term threat
to the world energy supply" which the U.S. should "vigorously
oppose." Officials express grave concern, but only in private.
As the case of OPEC demonstrates, closing markets to
competition, promoting national oil companies (NOCs), and limiting
production through a quota system results in limited supply and
higher oil prices. Gas, in the long run, will not be different. The
United States should open its vast natural gas resources on- and
off- shore to further exploration and production and encourage its
neighbors in Canada, Mexico, and the Caribbean to do the same.
Finally, the Bush Administration must develop a clear global
policy to limit cartelization of the gas markets. Specifically, the
U.S. should work with the European Union member states, Japan,
China, India, and other countries to prevent the cartelization of
the gas sector. This can be accomplished through cooperation in the
International Energy Agency, which China and India should be
invited to join, and by applying anti-trust legislation worldwide
against state-owned companies that are actively involved in
cartel-like behavior in energy markets. The U.S. should also work
closely with those within GCEF who oppose Russian-Iranian
domination. These include Azerbaijan, Canada, the Netherlands, and
Norway. The National Security Council and the National Economic
Council should take the lead in developing this policy. Unless
buyer solidarity is translated into action, energy consumers and
economic growth will suffer worldwide.
Ariel Cohen, Ph.D., is
Senior Research Fellow in Russian and Eurasian Studies and
International Energy Security in the Douglas and Sarah Allison
Center for Foreign Policy Studies, a division of the Kathryn and
Shelby Cullom Davis Institute for International Studies, at The
 The forum
was created in 2001 by Algeria, Brunei, Indonesia, Iran, Malaysia,
Nigeria, Oman, Qatar, Russia, and Turkmenistan.