The Debut of Gasfinger

Although it feels like a subject we have beaten to death with a heavy stick, today’s first official meeting of the gas cartel can’t go by without comment.  We’ve written about why it’s different than the oil cartel, why it might be bluff, why the perceptions of the cartel are just as important, the important role of North Africa, how it is politically relevant and very misunderstood, all the times Russia has denied their interest in it, how Gazprom already is a self-contained cartel, and how Italy became its first victim.

Is there much left to add?  Yes.  Despite the fact that everyone clearly understands that the gas troika really doesn’t pose a threat with regard to their ability to manipulate immediate prices via production quotas (like oil), nobody seems to be talking about what the cumulative impact of these coordination efforts have on the rapidly diminishing competition between suppliers and the carve up of markets.  Also, attention should be given to the coordination of investments.

The Financial Times has an interesting piece today which points to a few reasons why driving gas prices higher isn’t what Russia needs right now, and how this new group could result in fewer development opportunities for the multinationals – who needs Exxon’s funding when you’ve got the Saudis?

But Gopec’s emergence is, nonetheless, significant. Russia has systematically wooed gas producers, including Iran, Nigeria, Libya, Algeria and Qatar. It clearly aims to play a co-ordinating role among producers, and has a hand in virtually all existing and prospective supply routes to Europe. Theoretically, it could co-ordinate which resources producers choose to develop and when they come on stream – increasing longer-term pricing power.

Moreover, Uralsib, a Moscow investment bank, suggests Gopec’s formation will leave control of gas development, especially LNG, in the hands of members’ national energy companies. The likes of ExxonMobil, BP and Shell may be relegated to minority stakes. Russia may also invite Gopec energy companies to help exploit its gas reserves. That way, Gulf states, especially those without their own gas, gain access to coveted reserves. Russia gets help raising the hundreds of billions of dollars needed to develop its remote gas provinces. And it gains a useful bargaining chip for times when, as now, it is under pressure to join in Opec’s oil production cuts.