Gas Producers Meet in Moscow Amid Russian Dispute With Ukraine

By Lucian Kim and Greg Walters

Dec. 23 (Bloomberg) -- Energy ministers from the world’s largest natural-gas exporters gathered in Moscow today to forge closer ties as Russia threatened to cut supplies of the fuel to Ukraine in a row over unpaid bills.

Prime Minister Vladimir Putin, who turned OAO Gazprom into a global energy company during two presidential terms, will open a meeting of the Gas Exporting Countries Forum, which includes OPEC members Iran, Algeria and Qatar. Western consumer countries have warned against forming a “gas OPEC” along the lines of the Organization of Petroleum Exporting Countries.

“Maybe it’s a bright image, but the mechanisms of OPEC can’t be used on the gas market,” Alexander Medvedev, Gazprom’s chief of exports, said last week. “In this case, it’s not necessary to make comparisons.”

Russia, which supplies a quarter of Europe’s gas through pipelines, is locked into long-term contracts that don’t allow the flexibility and reach of the world oil market. Yet as demand grows for liquefied natural gas -- gas chilled to a liquid for transport by tanker -- a global market is forming that reduces the importance of pipelines and encourages spot trades.

The forum is set to agree on a charter transforming it from a loose, consultative body into a formal organization with a permanent secretariat, as Russia seeks a leading role in the group. This year’s annual meeting was delayed several times amid reports that member nations disagreed over the group’s future.

Ukraine Dispute

The meeting is taking place as Russia has told Ukraine, 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.

Russia shut off deliveries three years ago amid a price disagreement, and says its neighbor is withholding about $2 billion in payment for gas supplies.

Viktor Zubkov, chairman of Gazprom, said yesterday that Ukraine should be held “fully responsible” for any disruption in Russian gas supplies to Europe as the sides struggle to resolve the dispute by a Jan. 1 deadline.

The Moscow-based Institute of Energy and Finance estimates that each ruble in capital investment adds five rubles to economic growth, meaning non-payment by Ukraine could reduce Russia’s gross domestic product by 301 billion rubles ($10.6 billion), representing lost growth of 0.7 percent, according to the Kremlin press service.

Russian LNG

Gazprom is planning to expand beyond its European client base when it starts loading its first LNG cargo in February, opening up new markets for Russian gas in Japan, South Korea and North America. The state-run company formed a “gas troika” in October with Qatar and Iran for joint exploration and production projects. Together, the three countries hold more than half of the world’s gas reserves.

Four cities are vying to host the Gas Forum’s permanent secretariat, Medvedev said. St. Petersburg will compete for the honor with Algiers, Tehran and Doha, Qatar, he said.

During his presidency from 2000 to May this year, Putin consolidated state control over the country’s oil and gas industry, with Gazprom as the flagship for Russia’s new economic might. The Moscow-based company is pursuing projects from Libya and Vietnam to Alaska and Bolivia.

Yesterday Gazprom said France’s GDF Suez SA may join the planned Nord Stream pipeline, as Russia shores up support for the project by bringing in more foreign partners.

French Investment

Gazprom Chief Executive Officer Alexei Miller discussed the possibility at a meeting with his GDF Suez counterpart Gerard Mestrallet in France yesterday. GDF Suez is “interested in principle” in becoming a minority investor in the 1,200- kilometer (750-mile) pipeline linking Russia to Germany, according to a Gazprom statement.

Gazprom currently owns 51 percent of Nord Stream, with Wintershall Holding AG and E.ON Ruhrgas AG each holding 20 percent and Nederlandse Gasunie NV 9 percent.

After oil prices started tumbling from a record in July, Putin’s deputy, Igor Sechin, began pushing for closer coordination with OPEC, of which Russia is not a member.

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. The last ministerial meeting was held in Doha in April 2007. Forum members include Egypt, Nigeria, Malaysia and Trinidad & Tobago.

To contact the reporter on this story: Lucian Kim in Moscow at lkim3@bloomberg.net