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Big Surprise, Gazprom Says No Gas Cartel

Here’s a big surprise. In an interview to be published tomorrow in the German magazine Capital, Gazprom’s Deputy CEO Alexander Medvedev is denying the possible formation of gas cartel.

“Our business is based very much on long-term supply contracts. It is therefore impossible to develop a cartel mechanism like OPEC,” Capital quoted Medvedev as saying. … “We’re just as dependent on the export revenues — which account for two thirds of our sales — as our customers are on our deliveries,” he told the magazine.

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The controversy of the Gas OPEC is really just semantics – coordination is already well under way.

Medvedev isn’t saying anything new here (in fact, you may recall similar denials right before the Doha meeting, saying that no agreement would be signed. Of course, that also turned out to be a lie when the producers established a high-level exploratory committee). Here Russia’s Gas Czar is using the same tired argument that many analysts have used to resolutely discard any concern over the increasingly close relations between gas exporters based on the narrow view that cartels can only function by their ability to influence price. I am surprised that he didn’t also argue that the cartel isn’t possible because of Gazprom’s reliance of pipelines, lack of global market, differing policy agendas with other producers, fear of sanctions, and the high capital requirements for natural gas infrastructure – because that would be about the complete list that the naysayers usually tick off. I hate to sound like a broken record on the gasfinger issue, and it is true that the implied threat of the gas cartel has political expedience in and of itself, but I have made it clear many times in the past that 1) the gas cartel is not a problem for the short term, but rather one to watch for the long term, and 2) that such a cartel would not function like OPEC with production quotas – rather it would carve up markets and reduce competition. Many months ago, we were warning that the aggressive resource diplomacy exercised by the Russians with Algeria in Central Asia represented the key tactics of how the new gas cartel would operate – and now look what has happened. Still, only some fringe elements are catching on to the trend and seeing the Turkmenistan gambit in light of the gas cartel. Ariel Cohen of Heritage has similarly done some excellent research on this issue, noting that a Russia-led gas OPEC would likely be gradual, stealthy, and by most appearances, reasonable. For Alexander Medvedev to come out of no where and reassure us that there isn’t any gas cartel – especially when the issue has been cold in recent weeks – shows that Gazprom is eager to work on its public image and calm down consumers following the rough meetings held at the EU-Russia summit and some recent bad press. However, we know from past experience how awkward and uncomfortable Gazprom finds the task of appealing to the public.