Dancing the Gas "Troika"

Oct 22 09:58
by Izabella Kaminska

Talk of a natural-gas alliance is officially back.

Following high-level talks in Iran, Qatar and Russia are to forge a so-called “Gas Troika”.

This sort of chatter has been around before, everytime causing a corresponding level of panic about a potential Opec-style grip on natural gas prices. More…

Talk of a natural-gas alliance is officially back.

Following high-level talks in Tehran, Iran, Qatar and Russia are to forge a so-called “Gas Troika”.

This sort of chatter has been around before, everytime causing a corresponding level of panic about a potential Opec-style grip on natural gas prices. Witness, the Times today:
We need not worry that Russia is about to join the oily club. Today’s visit by Abdullah al-Badri is a formality, but the talk of a gas cartel is a different matter. A combination of leading gas exporters, no matter how tentative, could pose a serious economic threat to Europe. We should first discount the hoopla from Gholam Hossein Nozari, the Iranian Oil Minister, who proclaimed yesterday that the talks between Russia, Iran and Qatar had reached ‘a consensus to set up a gas Opec’.

Or the WSJ (our emphasis):

Iran, Qatar and Russia have agreed to form an OPEC-style organization for gas-exporting countries, Iran’s oil minister said Tuesday after a trilateral meeting in Tehran.

That’s all very well, but there is an important distinction to be made between a “gas troika” and an Opec-style cartel. A true Opec-style union is many years aways. In fact most gas market specialists would say it’s currently almost an impossibility.

For one, nat gas does not trade like oil. It is locked to specific pipeline routes and/or transported in liquefied form as LNG. Both are contracted out in long-term deals, leaving very little to trade in an effective spot market.

Without a viable spot market it would be very hard to control day-to-day prices. What’s more natural gas prices are extremely seasonal, and can spike on a day’s notice if there’s a cold snap.

While you can trade the arb between Europe, the US and Asia, on the whole each market also follows its own, very unique, fundamentals.

All that said, a close cooperation between the three, which collectively represent some 56 per cent of the world’s known reserves according to the BP Statistical Review of World Energy, could make a difference in deciding long-term contracts and future investment strategies. But, these sorts of decisions would still take years to feed-through.

For the time being, Russia’s best policy to control prices is still the old, hardly subtle, tap-turning.