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Gas OPEC Beginning to Look Realistic

Despite resolutely denying any possible consideration of creating a gas cartel with Iran just a few days ago, today the Wall Street Journal is running a big report about Russia being “in talks” regarding the issue. Jan. 31 – Radio Free Europe – “Russia Denies Plans for Gas Cartel” Feb. 2 – Wall Street Journal – “Russia and Iran Discuss a Cartel For Natural Gas

Russia and Iran — which hold nearly half the world’s natural-gas reserves — are talking about creating an OPEC-like organization for gas, a move that has the potential to unsettle energy markets and redraw geopolitical alignments. Gas accounts for a growing share of global energy use, but the nations that produce most of it don’t work together to influence markets. That’s a stark contrast to the oil market, in which members of the Organization of Petroleum Exporting Countries manage output to keep prices at levels they favor. During his annual news conference in the Kremlin yesterday, Russian President Vladimir Putin said “a gas OPEC is an interesting idea. We will think about it.” His comment comes days after Iranian Supreme Leader Ayatollah Ali Khamenei publicly called on a visiting Kremlin official to establish a group of natural-gas producers similar to OPEC. Russia and Iran are the world’s largest and second-largest holders of gas reserves, respectively. … It isn’t known exactly how a gas cartel would operate, but OPEC has been a huge market force for decades. For a period in the 1970s, OPEC members set prices for their oil, and Western countries paid up. But oil demand eventually fell because of the high prices. In response, OPEC started cutting back output to influence prices and let market forces do the rest. That is still the strategy it employs today: In recent months, alarmed about falling oil prices, OPEC announced production cuts totaling 1.7 million barrels a day. Talk of creating a gas cartel appears partly to be an outcome of dissatisfaction among gas suppliers with the emerging international gas market. After investing billions of dollars into boosting output over the past five years, “it’s difficult to place all of this gas in the market at a price that they’re comfortable with,” says Ira Joseph, executive director of international gas at PIRA Energy, a New York-based energy consultant. The discussion of a cartel, he says, is “in large part a reflection of that.”