GECF Signs Charter; Formalises Association

The GECF, which had been a loose knit organisation of essentially competing interests since 2001, has now formalized a charter. Gas importers, such as Europe, have been watching closely to see whether the GECF would morph into a "gas OPEC". Although no formal signs of that have emerged from the meeting in Moscow, importers are still likely to be wary of new attempts at co-ordination among the exporting countries.

Present at the Moscow meeting were GECF members Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates, and Venezuela. Equatorial Guinea and Norway attended as observers.

Troika, Prices, Influence

Russian Prime Minister Vladimir Putin told the meeting that the era of cheap gas was over and that consumers would have to get used to surging natural gas prices. "The expenses necessary for developing fields are rising sharply," he said. "This means that despite the current problems in finances the era of cheap energy resources, of cheap gas, is of course coming to an end." He said that the distance between where gas is produced and developed and where it is consumed would eventually force the price up. He also criticized the "politicisation" of energy and said that the interests of producers, consumers, and transit nations can only be unified through "clear and long-term relations based on the foundations of a market economy."

Despite the headline-grabbing rhetoric, little else was agreed at the meeting. The charter formalises the aims of the GECF. These aims are to foster mutual interests by favouring dialogue between producers, consumers, government and industry, and to promote a stable and transparent energy market.

The so-called "troika" of Iran, Russia, and Qatar made few waves at the meeting, as one of their primary aims of technical co-operation was not on the agenda. However the very formation of the troika may have expedited the agreed charter. The troika hoped that by establishing a consensus of leading reserve holders, other members would fall into line and would be willing to join any permanent body established by the three.

Putin's warning over higher prices comes as Gazprom negotiates "market prices" with former CIS countries for gas supplies next year, only to find market prices significantly lower than it hoped. Gas price will be indexed to oil for the foreseeable future, and Putin's purported higher prices won't be seen for a few years at least.

The OPEC Shadow

Many of the GECF are also OPEC members, with the notable exception of Russia, which joined as a non-permanent member. There was criticism of Russia at the GECF meeting from OPEC members, who argued that Russia should have sacrificed some of its own output to back up President Dmitry Medvedev's promise to support OPEC oil-production cuts. Critics claimed that the main way to help gas prices is to bolster the oil price.

Aside from internal wrangling over oil, there was a difference of opinion from members about whether the GECF was a gas OPEC. Russia is very keen to play this down, but Iran and Venezuela have said the GECF draws inspiration from OPEC. The key difference, however, is that the GECF appears to be forward-looking and possibly more proactive, at least in theory, whereas OPEC reacts to market situations as events unfold.

Outlook and Implications

Gas importers such as Europe will probably not be reassured by the creation of a formal charter, which they will see as the road to a GasPEC. Differences of opinion from the GECF members make the possible formation of a GasPEC a long way off, and influence over prices in any case will be minimal in comparison to OPEC's sway.

The charter could enable better technical co-operation (notably pricing structures and data standardisation) between GECF members. Nothing is to be gained from un-nerving consumers such as Europe, especially as demand for gas will drop over the next couple of years. But with long-term contracts and oil indexation the order of the day in the gas market, and a global trade unlikely to make headway during a recession, progress for GECF will be slow.

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