In the Asia-Pacific region, OGEC has yet to receive a public airing. It’s a different story in Europe, and to a lesser extent the United States, where talk of a gas-exporting cartel to rival the Organisation of the Petroleum Exporting Countries is causing a severe nervous reaction.
The trigger for talk on OGEC goes back to Christmas when the Russians shut down gas deliveries to the Ukraine, which led to a knock-on effect across Europe.
It had been staring them in the face for decades but suddenly the Europeans realised that they had become dependent on Russian gas to run their industries and warm their cities.
What has followed since those chilly days is an even chillier round of talks as the Russians castigate the Europeans (particularly the British) for daring to discuss a de-regulated gas market – while holding sideline talks with countries like Algeria on forming a gas marketing “alliance”.
At first, The Slug struggled to see what this had to do with Australia and the wider Asia-Pacific region – but then the penny dropped. What happens in Europe in its relationship with Russia will affect everybody selling gas.
Right now, the effect is hard to see because gas is in short supply and prices are high. What’s worrying the Russians is the future trend, when big new gas projects potentially create a gas glut. Hard as this is to imagine, it can be seen in the liquefied natural gas building boom underway around the world.
It is possible that over the next few years, globally traded LNG could become as plentiful in world markets as oil was in the 1950s and 60s – a time when prices were so low that power shifted from producers to consumers.
The gas question is not a simple supply and demand equation. What appears to be happening is that the Russians have been stung by European criticism and the talk of deregulation, which they see as code for a buyer of gas being able to on-sell to a third party.
Over time, the Russians fear that a fully deregulated market will encourage excess production. This is the reason why they’re talking to the Algerians because between them, Russia and Algeria account for the lion’s share of gas imports that are steadily rising as the North Sea peters out.
Gazprom, Russia’s gas monopoly, argues that it will only sell on long-term contracts, and third parties have no part in the transaction. “Interfering in commercial business” is a claim tossed around by Gazprom spokesmen and “a threat to market stability” is code for keeping prices high.
But the best quote of all was this description of a system that enables gas to be freely traded – “interfering liberalisation”.
The Slug, keen to avoid drifting back into the days of the cold war, found that remark as close as anything from the days of communism that he has seen in years.
But having absorbed this blast from the past, The Slug has looked at what really worries the Russians – the future potential for a gas glut, a time perhaps 10 years or more away, when Russia loses its grip on the European market thanks to a rising tide of gas imports from “other” countries.
The game today is to stitch up those “other” countries into a cartel, like OPEC, and draw up an agreement that sequences the development of LNG projects to maintain prices through an artificial production-limiting agreement.
Where this leaves Australia is fascinating. There is no way this country will join an OGEC but there is every chance that countries threatened by a Russian/Algerian-led gas cartel will make a bee-line for Australia to stitch up long-term gas contracts that are reliable and commercially based, without a whiff of the politics and ideology steaming off Russia today.
