Thursday, April 22, 2010

‘Gas OPEC’ holds glut talks

[ The National ]
by Tamsin Carlisle



Eleven of the world’s leading gas exporters have met in Algeria to discuss how to cope with a supply glut that could last for years.


The Gas Exporting Countries Forum (GECF), which has been dubbed the “gas OPEC”, appears to be growing more organised. But there was little evidence yesterday it would agree on a workable strategy for propping up sagging spot market prices for natural gas.


Algeria, which is hosting the meeting at its port of Oran, near the country’s biggest liquefied natural gas (LNG) export terminal, has for the first time called for supply cuts.


But other big exporters including Russia and Qatar seemed unconvinced this week that such a move would be effective, and wanted to discuss how to prevent the ready availability of spot supplies from undercutting long-term contracts. The UAE is not a member of the forum.


In the run-up to yesterday’s ministerial meeting, Chakib Khelil, the Algerian energy minister, had softened his stance and was no longer talking explicitly about cutting exports.


“A new model of co-operation is to be devised, beneficial to all,” Mr Khelil said before the meeting. “I think we should work towards a stable international gas trade through efficient use of world energy resources.


“The elements we should discuss today could constitute the basis for the definition of all possible options for implementation of all appropriate strategies for their achievement.”


Mr Khelil blamed the significant drop in spot market gas prices, which have fallen 28 per cent in the US since the start of this year to about $4 per million British thermal units, on the global economic crisis and new production technologies that have unlocked large volumes of unconventional “shale gas” in the US, ending the country’s reliance on imports.


A “fair” price for gas, he proposed, would be based on thermal equivalency with oil, giving a gas price of between US$13 and $14 per million British thermal units when crude is priced at $80 a barrel.


Abdullah al Attiya, the Qatari energy minister, said on Sunday he shared Mr Khelil’s position on “the question of fair gas prices”.


“The most important thing for us is to establish an appropriate price for gas indexed to the price of oil,” Mr al Attiya said.


Sergei Shmatko, the Russian energy minister, said gas producers should work together to limit the impact of spot sales on their long-term deals, as consumers sought to reduce what they purchased under long-term contracts, making up the difference with cheaper spot supplies.


“The spot market is also important, but it should not start to compete with long-term contracts in the form that is happening today,” Mr Shmatko said.


“We supply within the framework of long-term contracts, and we believe that other suppliers should or could express their approach to that and join with us.”


The GECF, made up of the holders of 70 per cent of the world’s gas reserves, has never before co-ordinated supply policy. Analysts said the group was now being forced to consider such action because the unexpectedly low prices were squeezing their export revenues.


Russia holds the world’s largest gas reserves and is the leading gas exporter, while Qatar is the biggest LNG exporter. Algeria is also a major gas exporter by pipeline and tanker, and was among the first countries to export LNG.


The GECF was expected to issue a statement after the meeting.


tcarlisle@thenational.ae




The original version of this story stated that the UAE was a member of the Gas Exporting Countries Forum. In fact, it is not a member.

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