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Alexander Temerko on the Gas Cartel

In the Sunday Observer, former Yukos VP Alexander Temerko published a column on the possibility of a Russia-led gas cartel. Despite repeated denials from officials attending the Doha meetings that any such group would be performed, even before the first day of meetings was completed there was already news that an exploratory committee would be formed to investigate prices. For some reason, copy editors are finding this to be a very difficult story to write a headline for. Temerko in the Sunday Observer:

Now a newly confident Russian political elite is seeking to play an active role in global politics. Energy is considered one of the main tools for its comeback as a superpower. Reinforcing this are the needs of the Russian gas monopoly Gazprom. Its biggest fields are in the declining production phase. To launch new fields it needs multi-billion-dollar investments. At the same time, it faces mounting costs to maintain its pipeline infrastructure. The future price of gas will be influenced by the rate of return on massive investments in exploration and production over the next five to seven years. Gazprom’s motto is ‘We only start producing gas that has already been sold’ and it will not develop new fields without first signing long-term contracts. And these must guarantee Gazprom a price high enough to cover not only its own expenses, but also the financing it provides to various of the Kremlin’s political projects. I believe Moscow has already decided and a gas production cartel is inevitable. The only questions to be decided are: Who (else) will join, what parts of the European market must Russia concede to get them to do so, and how exactly – and publicly – will the new organisation function? It will differ from Opec, an organization of oil producers designed to serve their own interests in a highly volatile global oil market. The main tool at their disposal is a flexible system of quotas, which raises or decreases oil supplies to the market. In the gas industry, the tap can’t be turned on or off casually. The European gas market is based on contracts of up to 20 years or more and is already characterised by Gazprom’s leading role as a supplier. Currently it supplies almost 40 per cent of European gas consumption with 21 countries buying Russian gas.