Gas Producers’ Club, Based on OPEC, Will Have Doha Headquarters

By Lucian Kim and Stephen Bierman

Dec. 24 (Bloomberg) -- Russia, Iran and other countries controlling the world’s biggest natural-gas reserves agreed to coordinate forecasts, investments and relations with consumers to defend their market interests amid volatile energy prices.

The 15-member Gas Exporting Countries Forum, which adopted a charter in Moscow yesterday, will locate the headquarters of its new secretariat in Doha, Qatar, the biggest source for world liquefied natural gas shipments. LNG may eventually form the basis for more global gas trading.

Western consumer countries have warned against a “gas OPEC” modeled after the Organization of Petroleum Exporting Countries. Producers will face a challenge shaping the market, where 70 percent of gas is still sent by pipeline to regional consumers and no global benchmark price exists on an exchange.

“This is a significant event for the market,” Russian President Dmitry Medvedev told reporters after the meeting. “Global stability, energy security and the balance of interests between exporters, transit states and consumers depend on the agreed position of the exporting countries.”

The charter transforms it from a loose, consultative body into a formal organization. Russia, which spearheaded the drive for closer coordination, says gas producers won’t be able to copy OPEC and need a forum similar to the International Energy Agency, which represents consumer nations.

“A new organization was born today,” Russian Energy Minister Sergei Shmatko said. “We didn’t limit ourselves in any of the tasks facing gas producers. We agreed that nothing would be off-limits.” The group will choose a secretary-general at its meeting next year, Shmatko said.

Regional Market

Unlike oil, which is traded internationally and has global exchange-based prices, gas is sold regionally, frequently under long-term, private contracts where pricing is more opaque. Where exchange-based prices exist, they reflect local supply and demand fluctuations.

On the New York Mercantile Exchange, U.S. natural gas futures fell to $5.294 per million British thermal units on Dec. 22, the lowest settlement since September 2006, before rallying yesterday. The decline reflects the drop in crude oil, which has fallen about 60 percent this year.

“Coordination will prevent unnecessary and harmful competition in the market that may be to the detriment of exports,” Iranian Oil Minister Gholamhossein Nozari told the forum. Gas market participants should be able to “adjust and revise gas export prices whenever necessary.” Yesterday’s summit in Moscow was postponed several times amid reports that member nations disagreed over the group’s future direction.

Oil Volatility

OPEC itself failed to prevent oil rising to a record $147.27 a barrel in July, driven by demand from China and other Asian economies and speculative purchases. The oil producers’ group has also been unable to stem the plunge in oil to below $40 this week amid recession in the U.S. and Europe, even with an announced cut of 4.2 million barrels a day in production from its September levels.

Venezuelan Energy Minister Rafael Ramirez told the Moscow meeting that gas producers should adopt the “same principles” as OPEC. “We need mechanisms and tools that will let us better interact between gas exporters to avoid competition,” he said.

Russia, which supplies a quarter of Europe’s gas, has argued that the gas market can’t be compared with the spot trades and mobility of the global oil market. The world’s largest crude producer outside of OPEC, Russia has been reluctant to coordinate supply cuts with other countries.

Doha Selection

“I believe exporters can find the balance between competition and the harmonization of their energy policies,” Shmatko said. “Our most important task is the synchronization of our investment plans so that oversupply doesn’t emerge in one part of the world that would put pressure on prices.”

Doha beat competition from three other cities to host the forum’s permanent secretariat. St. Petersburg, Algiers and Tehran were also under consideration.

OPEC was founded in 1960 by Venezuela, Iran, Iraq, Kuwait and Saudi Arabia. The Gas Exporting Countries Forum held its first meeting in Tehran in 2001.

Forum members include Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad & Tobago, the United Arab Emirates and Venezuela. Norway and Kazakhstan have observer status.

Largest Producer

Russia is the world’s largest natural gas producer, with output of 607 billion cubic meters in 2007, according to BP Plc statistics. Iran produced 112 billion, Algeria 83 billion and Qatar 60 billion that year. Production in the U.S. in 2007 was 546 billion cubic metres, and in Canada 184 billion.

Russia also has the largest proven natural gas reserves in the world, with 44.7 trillion cubic meters at the end of 2007, followed by Iran with 27.8 trillion and Qatar with 25.6 trillion.

The meeting coincides with a dispute between Russia and Ukraine over gas supplies. Russia has told its neighbor, which ships about four-fifths of the nation’s gas exports to Europe via its pipelines, that it will cut deliveries in the event of a failure to be paid for energy shipments in 2008.

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net

By Lucian Kim and Stephen Bierman

Dec. 24 (Bloomberg) -- Russia, Iran and other countries controlling the world’s biggest natural-gas reserves agreed to coordinate forecasts, investments and relations with consumers to defend their market interests amid volatile energy prices.

The 15-member Gas Exporting Countries Forum, which adopted a charter in Moscow yesterday, will locate the headquarters of its new secretariat in Doha, Qatar, the biggest source for world liquefied natural gas shipments. LNG may eventually form the basis for more global gas trading.

Western consumer countries have warned against a “gas OPEC” modeled after the Organization of Petroleum Exporting Countries. Producers will face a challenge shaping the market, where 70 percent of gas is still sent by pipeline to regional consumers and no global benchmark price exists on an exchange.

“This is a significant event for the market,” Russian President Dmitry Medvedev told reporters after the meeting. “Global stability, energy security and the balance of interests between exporters, transit states and consumers depend on the agreed position of the exporting countries.”

The charter transforms it from a loose, consultative body into a formal organization. Russia, which spearheaded the drive for closer coordination, says gas producers won’t be able to copy OPEC and need a forum similar to the International Energy Agency, which represents consumer nations.

“A new organization was born today,” Russian Energy Minister Sergei Shmatko said. “We didn’t limit ourselves in any of the tasks facing gas producers. We agreed that nothing would be off-limits.” The group will choose a secretary-general at its meeting next year, Shmatko said.

Regional Market

Unlike oil, which is traded internationally and has global exchange-based prices, gas is sold regionally, frequently under long-term, private contracts where pricing is more opaque. Where exchange-based prices exist, they reflect local supply and demand fluctuations.

On the New York Mercantile Exchange, U.S. natural gas futures fell to $5.294 per million British thermal units on Dec. 22, the lowest settlement since September 2006, before rallying yesterday. The decline reflects the drop in crude oil, which has fallen about 60 percent this year.

“Coordination will prevent unnecessary and harmful competition in the market that may be to the detriment of exports,” Iranian Oil Minister Gholamhossein Nozari told the forum. Gas market participants should be able to “adjust and revise gas export prices whenever necessary.” Yesterday’s summit in Moscow was postponed several times amid reports that member nations disagreed over the group’s future direction.

Oil Volatility

OPEC itself failed to prevent oil rising to a record $147.27 a barrel in July, driven by demand from China and other Asian economies and speculative purchases. The oil producers’ group has also been unable to stem the plunge in oil to below $40 this week amid recession in the U.S. and Europe, even with an announced cut of 4.2 million barrels a day in production from its September levels.

Venezuelan Energy Minister Rafael Ramirez told the Moscow meeting that gas producers should adopt the “same principles” as OPEC. “We need mechanisms and tools that will let us better interact between gas exporters to avoid competition,” he said.

Russia, which supplies a quarter of Europe’s gas, has argued that the gas market can’t be compared with the spot trades and mobility of the global oil market. The world’s largest crude producer outside of OPEC, Russia has been reluctant to coordinate supply cuts with other countries.

Doha Selection

“I believe exporters can find the balance between competition and the harmonization of their energy policies,” Shmatko said. “Our most important task is the synchronization of our investment plans so that oversupply doesn’t emerge in one part of the world that would put pressure on prices.”

Doha beat competition from three other cities to host the forum’s permanent secretariat. St. Petersburg, Algiers and Tehran were also under consideration.

OPEC was founded in 1960 by Venezuela, Iran, Iraq, Kuwait and Saudi Arabia. The Gas Exporting Countries Forum held its first meeting in Tehran in 2001.

Forum members include Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad & Tobago, the United Arab Emirates and Venezuela. Norway and Kazakhstan have observer status.

Largest Producer

Russia is the world’s largest natural gas producer, with output of 607 billion cubic meters in 2007, according to BP Plc statistics. Iran produced 112 billion, Algeria 83 billion and Qatar 60 billion that year. Production in the U.S. in 2007 was 546 billion cubic metres, and in Canada 184 billion.

Russia also has the largest proven natural gas reserves in the world, with 44.7 trillion cubic meters at the end of 2007, followed by Iran with 27.8 trillion and Qatar with 25.6 trillion.

The meeting coincides with a dispute between Russia and Ukraine over gas supplies. Russia has told its neighbor, which ships about four-fifths of the nation’s gas exports to Europe via its pipelines, that it will cut deliveries in the event of a failure to be paid for energy shipments in 2008.

To contact the reporters on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Stephen Bierman in Moscow at sbierman1@bloomberg.net