GECF STILL CANNOT EMULATE OPEC

Another summit of the Gas Exporting Countries Forum (GECF) held in Tehran has failed to bring about a breakthrough towards the main purpose for which the organization was set up. Founded back in 2001, the forum gained status as an international organization in 2008. Despite being informally called the "Gas OPEC" since then, the organization never lived up to this status. Even organizationally, the 12 GECF members - Russia, Algeria, Bolivia, Venezuela, Egypt, Iran, Qatar, Libya, Nigeria, the UAE, Trinidad and Tobago and Equatorial Guinea - have met only on three occasions since 2008. 

The declaration of the latest meeting of the GECF countries' leaders has also indicated their nominal commitment to cooperation in the gas sphere. However the Tehran summit aroused special interest because Russian President Vladimir Putin took part in it. This is only natural: Russia remains the world's biggest exporter of natural gas and it has no intention to lose this status. 

According to Vladimir Putin, Russia intends to increase its gas production by 40 per cent over the next 20 years. This necessity arises from the world's steadily growing need for gas. "Gas is the most available, economical and ecologically friendly type of fuel. The global demand for it is growing at a rate higher than for oil and other energy resources. According to forecasts, the global need for gas will increase by 32 per cent by 2040, reaching almost 5 trillion cubic metres," Putin said addressing the Gas Exporting Countries Forum in Tehran. This is why the Russian Federation is planning to expand gas export with an emphasis on the eastern sector and to increase its share in the global trade in liquefied natural gas (LNG).

Russia is "increasing supplies of liquefied natural gas to 60m metric tons, which means from today's four per cent to 13 per cent in the global market". But such ambitious projects call for adequate investments and clear guarantees of project payback. From this point of view, Vladimir Putin urged gas consumers to share the risks with gas producers. "Energy security should be paid for by all - both by exporting and buying countries, which is fair and fully consonant with the spirit of market relations," Putin said. For this reason, he urged against giving up the practice of long-term contracts and take-or-pay terms in the interests of stability in the gas market. Russia has no obvious problems so far in the issue of gas export to Asia (work is in progress on the Power of Siberia pipeline for supplies to China and a new gas contract with China) but the number of question marks arising in the European and Turkish sectors is growing every day. 

It should be kept in mind that Putin made his statement on Turkey one day before the incident with the Russian SU-24 plane shot down by Turkey's air force at its border with Syria. This incident will undoubtedly have an impact on economic cooperation between the Russian Federation and Turkey and it will definitely shelve the Turkish Stream. Its future was dubious even before. Originally its throughput was designed to be 63bn cubic metres including 47bn to be supplied to Europe but the pipeline "thinned down" in the documents to 32bn cubic metres. Initially it was planned to reach final accords after the formation of the Turkish government based on the 1 November parliamentary election results. The aircraft incident will defer the Turkish Stream project to a distant future, at the least. 

On the one hand, attempts to build up gas export capacities in the north by laying the new Nord Stream II pipeline have met with opposition from the EU. According to Maros Sefcovic, the European Commission's Vice-President for the Energy Union, the construction of the Nord Stream II gas pipeline is beyond the European Union's sphere of interest. "The EU will only support infrastructure projects that are in line with the core principles of the Energy Union, including the EU Energy Security Strategy. Diversification of energy sources, suppliers and routes is crucial for ensuring secure and resilient supplies to European citizens and companies. It is for these reasons that the North Stream project will not become a project of common interest and will not benefit from EU financing," he added. According to the EU commissioner, the Russian gas pipeline will not provide the European Union with access to new sources of gas "and even further increase excess transmission capacity from Russia to the EU", he said. At the same time Sefcovic said that the EU is interested in Ukraine as an important transit state. 

Going back to the GECF subject, we should note that GECF member states account for about 70 per cent of the world's gas reserves and 45 per cent of gas export. But the goals pursued by the organization's members are too diverse for them to be able to stand as a united front on such key points as regulation of export volumes and prices on the gas market. The Russian Federation, for example, sells pipeline gas on the basis of long-term contracts, which confines its sales market mostly to Europe at the current stage, whereas Qatar is focused solely on LNG which enables it to supply natural gas to any point all over the world. Iran has not fully achieved its export potential despite large output volumes and the world's biggest gas reserves. This is why it is not essential for Qatar to be involved in the issue of price regulation in the global gas market as this country can redirect its flows depending on prices in one region or another. 

Meanwhile the first to advocate the introduction of price regulation mechanisms are Russia and Iran. For Moscow, it would provide additional leverage for influence on its traditional markets in the EU where it has to make gradual concessions just on matters of prices. Most European countries have got spot market quotations included in the gas price formula in addition to the global prices of oil and oil products. 

As for Iran, while preparing to enter the global gas market, it would not mind having additional leverage for influence on its customers. It is all the more so as opportunities for such big players to use gas as a tool for resolving political issues has always been there. 

In view of prospects for gas export increase over the next few years, Azerbaijan is also interested in working within the GECF framework. But in this case, a cautious model of behaviour has been chosen. Under the third summit of the GECF states' leaders, Azerbaijan has gained status as an observer in this organization, along with Oman, the Netherlands, Peru, Norway, Kazakhstan and Iraq. In the first place, this will enable the country to be in the know of all changes and innovations being introduced in the gas industry and, secondly, to present its gas transit capabilities. 

At the forum in Tehran, Azerbai-jani Energy Minister Natiq Aliyev suggested that countries of the region should take advantage of his country's infrastructure for oil and gas transportation. The region's gas exporting countries may benefit from joining the Trans-Anatolian Gas Pipeline (TANAP). 

On the global scale, the GECF is unlikely to turn into an analogue of the OPEC in the next few years. As was said above, the members of this organization have too different goals and their political biases differ cardinally. In addition, there are quite a lot of opponents to this kind of alliance: those are primarily gas consuming countries. Brussels and Washington declared from the very outset that it was unadvisable to regulate gas prices which must be formed solely on the basis of market-oriented methods, in their opinion.

At the same time, even if the sides reach consensus on mechanisms for gas price regulation, all the more reason for Azerbaijan not to give up its observer status in favour of full membership. Natural gas prices can be regulated only by changing the volumes of its production and export. Big players such as the Russian Federation, Iran and Qatar can endure an output reduction by 10-20-50 billion cubic metres relatively painlessly. Mean-while Azerbaijan may be faced with more serious consequences even if its output is reduced by as little as 5 billion cubic metres. 

In addition, it is necessary to take into account peculiarities of the gas market where long-term contracts for fixed sale volumes prevail. Reduction in gas export volumes may lead not only to a loss of consumer confidence but also to specific lawsuits over failure to meet contract terms. The specific character of changes in the global economic system also shows a lack of prospects for artificial influence on the pricing of energy supplies. OPEC has become aware of this and has made no attempts over the past couple of years to influence the market by reducing the volumes of oil production because countries not belonging to the oil cartel can fill the vacated niche within a short term. As a result, export reduction by the oil cartel cannot diminish the volume of "black gold" on the market or lead to a long-term upward price trend. At the same time, gas consuming countries have intensively been developing energy saving technologies in the past decades which objectively diminish the need for energy resources. 

It should also be kept in mind that Turkmenistan and Uzbekistan are not represented in any way at the GECF. Meanwhile they rank among the most important players in the gas market of the region where Azerbaijan is located. In theory, these countries are able to cover to some extent part of the output reduction by the "gas OPEC". 

But will the consumers be willing to return to those gas suppliers whose export policy depends on other countries, given that the market offers resources unconnected to any associations of states? The answer to this question is obvious.

AT FIRST HAND

"Azerbaijan is a gas exporter and we cannot stand aside from processes going on in this sphere. We must know what issues are being discussed by the GECF and what decisions are being taken by them. For this reason the leadership of Azerbaijan has taken the decision for the republic to become an observer at that organization. We have been offered full membership of the Forum but we find it premature," 

Natiq Aliyev, Minister of Energy of Azerbaijan