Recently, the theme of the «green transition», in which the economic, environmental and commercial prospects of the gas industry play a leading role, incl. for the hydrogen economy, in the global energy industry attracts special attention of business, government and scientific circles in many countries, due to its impact on the climate agenda, as well as on the economic, technological and geopolitical redistribution of the energy map of the world at the global and regional levels. A reassessment of the «green transition» strategy is expected due to the need to overcome the global energy crisis in the next two to three years, associated with a premature reduction in investment in traditional non-renewable energy resources, which may be more serious than the crisis of the 1970s. last century.
The crisis affected the gas sector to the greatest extent, which, due to a number of related features, still has a fairly pronounced regional character. At the same time, the development of gas energy technologies, especially LNG, creates conditions for the development of the global gas market in the conditions of inter-fuel competition, which objectively creates prerequisites for strengthening the coordination of gas exporting countries within the framework of the Gas Exporting Countries Forum (GECF) against the backdrop of attempts to create various alliances importing countries, primarily in the EU.
During REW 2021, the idea of a gas cartel was discussed by officials from Saudi Arabia and Russia. In August 2022, this topic returned to the agenda of expert discussions in foreign and Russian media. In this regard, we should recall the article by S. Zhiznin in NG-Energy “The Cartel as an Anti-Cartel Weapon” (09/14/2010), where, incl. the history of the creation and features of the development of this organization since 2001 were presented. Over the past years, many events have taken place that require a reassessment of the role of the GECF in gas diplomacy. What has changed in recent years?
Gas in the Green Transition: General Approaches
In recent years, the influence of geopolitical factors that dominate has sharply increased in the world energy sector, which has a negative impact on the development of all energy sectors, including within the framework of the «green transition», including the gas industry. A significant conflict geopolitical potential has accumulated at the global and regional levels, which makes it difficult for the economic mechanisms of energy markets to function within the framework of inter-fuel competition, including with the participation of gas and its products. The economic consequences of the pandemic are playing a negative role. Currently, there is, if not a stop to the «green transition», then at least its slowdown. The world has not yet fully recovered from COVID-19 and its devastating effects, but the negative impact of the pandemic on the economy is already evident.
Let’s look at the main reasons that provoked this crisis, as well as the likely consequences of the energy collapse for the planet and the world community.
First of all, covid caused a decline in industrial production, although the economy is now starting to recover, which is characterized by a boom in demand for electricity and energy resources in 2021.
In addition, the vagaries of the weather in 2020-2022: calm and drought in Europe, and icing of wind farms in the United States led to a shortage of green electricity supplies. Drought and water shortages in Latin America and China have created problems with hydroelectric power generation.
And finally, the green revolution has slowed down the development of traditional energy (coal-fired thermal power plants and mines are closed, the fight against nuclear power plants, the lack of investment in the oil and gas and coal industries, etc.). However, covid did not affect the growth in demand for electricity, which is largely associated with the growing needs of IT and other sectors of the digital economy in addition to traditional industrial and domestic segments, and its supply lagged behind, which caused a sharp increase in prices for electricity, as well as traditional energy resources. .
Among the consequences, it is important to note that the recovery of the global economy after the pandemic is being delayed. Judging by the results of the representative international energy business forum organized by S&P Global and a number of large energy companies and banks in Houston (March 7-11, 2022) CERAWeek2022, in which one of the authors, at the invitation of its organizer D. Yergin, took part online, “green transition has been suspended. Green energy is becoming too expensive, in addition, environmental problems have begun to arise with the RES themselves. Therefore, many countries quickly returned to fossil fuels (oil, gas, coal). In addition, the rise in prices for traditional resources leads to an increase in prices for many types of industrial and agricultural products. Therefore, in the short term, in addition to combating climate change, world powers and leaders face another major global challenge — to overcome the crisis in the energy sector in the context of the realities of the pandemic. In the long term, it is clear that the «green transition» in the global economy and energy will continue. Forecasts are made by S&P Global, Bloomberg, IEA, and others, and various scenarios are being developed. Common to many of them is the preservation of the important role of more environmentally friendly traditional energy resources (primarily gas, the demand for which will grow) with a moderate development of renewable energy sources. It is important to note that the EU has adopted documents that included gas in a green transition-friendly resource. Gas is not only an energy carrier, but also an important basis for the production of fertilizers and other gas chemistry products, as well as hydrogen and its derivatives (ammonia, etc.).
GECF and other «command centers» of the global gas industry
In the global gas industry, unlike the oil industry, informal inter-corporate cartels were not formed like the so-called “seven sisters” cartel, the principles of which were reflected in the activities of OPEC. International cooperation in the gas sector at the corporate level has been developed since 1931, when the International Gas Union (IGU) was established, which brings together gas associations and companies from more than 70 countries. The main forums organized by the IGU are the world gas congresses, held every three years. In addition, the European Union of the Gas Industry (Eurogas) plays an important role in the development of cooperation in Europe, in which the leading European gas companies and their associations are represented. PJSC Gazprom and the Russian Gas Society maintain active contacts with both unions. As for interstate cooperation in the gas sector, this issue was also raised within the framework of OPEC, albeit without success, despite the fact that many members of this organization have large gas reserves and are its exporters. In addition, the gas problem has attracted the attention of the influential global informal organization of the International Energy Forum (IEF), headquartered in Riyadh.
The issue of uniting gas exporting countries to protect their collective economic interests in relations with importing countries has been discussed since the early 1990s. The idea of creating a «gas OPEC» was voiced in 1999 at a gas forum in Paris, but received a negative assessment from the main gas importing countries, and especially from Norway, a major European exporter. Further discussions were held on this topic, which led to an inter-ministerial meeting in Tehran on May 19-20, 2001 with the participation of Algeria, Brunei, Indonesia, Iran, Malaysia, Nigeria, Qatar, Oman, Russia, Turkmenistan. There, a decision was made to establish a forum of gas exporting countries (GECF). Until 2008, GECF activities were informal and mainly limited to the exchange of views and data on various aspects of mining, transportation and sale of gas. However, in the future, in connection with the development of the situation in the main sales markets, the producing countries decided to change the principles of the GECF, its institutionalization in order to more effectively protect their interests. This is largely due to the prospects for the development of the global LNG market.
The decision to transform the existing Forum of Gas Exporting Countries as an informal association into an international organization was made during the 7th Ministerial Meeting of the GECF on December 23, 2008 in Moscow. This decision was supported by the leadership of Russia. The current members of the GECF are Algeria, Bolivia, Venezuela, Egypt, Iran, Qatar, Libya, Nigeria, Russia, Trinidad and Tobago, Equatorial Guinea, and the United Arab Emirates (since 2012). They account for more than 70% of the proven gas reserves in the world and about 44% of world exports. In 2008, in Moscow, delegations from 11 countries adopted the Charter and signed the Agreement on the Functioning of the GECF. A number of countries have observer status (Angola, Azerbaijan, Iraq, Kazakhstan, Norway, Oman, Peru). From the date of signing, the agreement is open for accession by Brunei, Indonesia, Malaysia, Turkmenistan, who previously participated in the activities of the informal GECF. It was also decided that in the future any other gas exporting country that shares the common interests and goals of the forum can become a member. Representatives of Turkmenistan, Brunei, Indonesia, Malaysia and Yemen took part in some ministerial meetings. It was reported that negotiations were underway with Canada and Australia on their entry into the GECF, and the issue of the transition of Kazakhstan and Norway from the status of observers to the status of full members was also discussed. In addition, the Netherlands had observer status for some time. Representatives of Turkmenistan, Brunei, Indonesia, Malaysia and Yemen took part in some ministerial meetings. It was reported that negotiations were underway with Canada and Australia on their entry into the GECF, and the issue of the transition of Kazakhstan and Norway from the status of observers to the status of full members was also discussed. In addition, the Netherlands had observer status for some time. Representatives of Turkmenistan, Brunei, Indonesia, Malaysia and Yemen took part in some ministerial meetings. It was reported that negotiations were underway with Canada and Australia on their entry into the GECF, and the issue of the transition of Kazakhstan and Norway from the status of observers to the status of full members was also discussed. In addition, the Netherlands had observer status for some time.
The forum has three governing bodies: a ministerial meeting, an executive council and a secretariat, which is located in the city of Doha (Qatar). The agreement on the functioning of the GECF came into force on September 30, 2009 after the depositary (Russian Federation) received notifications of the implementation of domestic procedures from five countries (Algeria, Qatar, Libya, Russia, Trinidad and Tobago). Subsequently, other countries completed similar procedures and the GECF is a full-fledged international economic organization. Ministerial meetings are held almost every year.
The main goals of the organization are to ensure the sovereign rights of member countries to their own natural gas reserves and the ability to independently plan and ensure the environmentally sustainable, careful and efficient development and use of gas in the interests of their peoples, exchange of experience, opinions and information on key aspects of the development of the gas industry. In particular, the founding documents note the need to “Enhance the role of the GECF in the global energy arena in order to support the sovereign rights of member countries over their natural gas resources, maximize their value for the benefit of their people, and promote their coordination in the field of global energy developments with aim of promoting global sustainable development and energy security”. It should be noted, that, unlike OPEC, the founding documents of the GECF do not provide for the establishment of quotas for gas production and the coordination of pricing policy. At the 10th ministerial meeting in Oran (Algeria) in April 2010, the long-term strategy of the GECF was discussed, and a decision was made to hold the first summit of this organization in 2011. Since then, 4 summits have been held with the participation of the heads of state of the GECF member countries.
Russia and GECF
During the negotiations on the formalization of the GECF, the development of constituent documents, Russia proceeded from the fact that the creation of a cartel of gas exporters similar to the existing OPEC oil cartel would mean the conclusion of an agreement between its participants on the division of the market and, accordingly, the introduction of a quota mechanism. The goal is to minimize losses from competition and lower prices in the context of the liberalization of the European market.
It should be noted that Russia’s main competitors in the European pipeline gas market are Algeria and Norway, and in the future — Libya, Egypt, Turkmenistan, Azerbaijan and Iran. The role of Russia in this group, both in terms of reserves and position in the EU market, is dominant. Iran has the second gas reserves after Russia, but due to existing international sanctions, its fields are not being developed on a large scale, it is even forced to buy gas abroad, mainly in Turkmenistan. Venezuela is also not yet among the gas exporters. At the same time, both countries are seeking to bring some OPEC elements to the forum, with an emphasis on tougher measures against the US and other gas importers. This position is not shared by Qatar and a number of other GECF members. In this regard, when developing the GECF, Russia is interested in in order to avoid its politicization, and focus on solving the economic problems of the global gas industry based on a balance of interests of consumers and producers. The Forum provides an opportunity to develop and deepen multilateral and bilateral cooperation between major gas exporters. In particular, this concerns the coordination of positions on the prospects for the development of gas markets in order to avoid uncivilized competition. In addition, an important issue is the development of a new pricing model for gas, taking into account its high environmental benefits compared to other traditional energy resources. The Forum provides an opportunity to develop and deepen multilateral and bilateral cooperation between major gas exporters. In particular, this concerns the coordination of positions on the prospects for the development of gas markets in order to avoid uncivilized competition. In addition, an important issue is the development of a new pricing model for gas, taking into account its high environmental benefits compared to other traditional energy resources. The Forum provides an opportunity to develop and deepen multilateral and bilateral cooperation between major gas exporters. In particular, this concerns the coordination of positions on the prospects for the development of gas markets in order to avoid uncivilized competition. In addition, an important issue is the development of a new pricing model for gas, taking into account its high environmental benefits compared to other traditional energy resources.
Representatives of Russia play an important role in the activities of the GECF. Representative of Russia Leonid Bokhanovsky (2009-2014) was elected the first Secretary General of the GECF, Mohammad Hossein Adeli from Iran was elected the second (2014-2018), and the former Deputy Minister of Energy of the Russian Federation Yuri Sentyurin (2018-2022) was elected the third. In addition, Russian experts hold various positions in the GECF secretariat. The current Secretary General of the GECF is the representative of Algeria, Mohamed Hamel.
Today, Russia’s positions in the European gas market, in the context of moving away from the system of long-term contracts, switching to exchange trading and simply from civilized relations, are forcing us to change the rules of the game, incl. in the framework of trade relations between Russia and the EU in the field of gas supplies. The Russia-EU Energy Dialogue has ended, leaving bilateral contacts in the energy sector, including gas, with a number of countries. But in general, there is simply no opportunity within the framework of interaction with the EU. There are prospects for energy cooperation with Japan, South Korea, China, India and other Asian countries. All this allows us to speak about the expediency of turning the GECF into a gas OPEC, although this process is lengthy and far from a mechanism for quoting gas production and exports.
In addition, Russian energy diplomacy in relation to various associations of gas exporting countries should take into account the fact that with the liberalization of the gas market and its politicization in the EU countries, a cartel association of gas consumers may occur. This has already affected the access of Gazprom and other producing companies from states (non-EU members) to gas transmission infrastructure and distribution networks within the EU borders. In addition, we see the economically incomprehensible shutdown of Nord Stream 2 and restrictions on Nord Stream 1, as well as Yamal-Europe. In addition, we are seeing closer coordination among European gas companies within the European Gas Industry Union.
«Gas OPEC»: problems and prospects of creation
In 2021-22, the issues of creating a global alliance of gas exporters were actively discussed at international conferences, in foreign and Russian media. In particular, according to Gazeta.ru on October 14, 2021, as part of the Russian Energy Week in October 2021, the Minister of Energy of Saudi Arabia, Prince Abdulaziz bin Salman Abulaziz Al Saud, spoke in favor of regulating the gas market. Judging by the words of Deputy Prime Minister A. Novak, «There is a rational grain in this, but it needs to be worked out in more detail.» In an analytical article by Simon Watkins on August 23, 2022 in the American journal Oil Price ( https://oilprice.com/Geopolitics/International/Iran-And-Russia-Move-To-Create-A-Global-Natural-Gas-C. ..) «Russia and Iran build foundation for potential gas cartel» It is predicted that a Russian-Iranian gas alliance could help control key elements of the global gas supply matrix. In particular, the article notes that «Gas is widely regarded as the optimal product in the transition from fossil fuels to renewable energy sources, so controlling its global flow will be the key to energy over the next ten to twenty years,» citing sources from the Ministry of Petroleum. Iran». A similar conclusion is drawn based on an assessment of the US$40 billion Memorandum of Understanding (MoU), signed in July 2022 last month between Gazprom and the National Iranian Oil Company (NIOC), is a stepping stone towards to allow Russia and Iran to realize their long-standing plan to become major participants in a global cartel for gas suppliers along the same lines as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers. (GECF) «Gas OPEC» will coordinate an extraordinary share of the world’s gas reserves and control gas prices in the coming years. Ranked first and second in the table of the world’s largest gas reserves respectively — Russia with just under 48 trillion m3 (tcm) and Iran with nearly 34 trillion m3 — the two countries are in an ideal position to do so.» “Based on the current Gas Exporting Countries Forum (GECF), a ‘gas OPEC’ will allow coordinating an extraordinary share of the world’s gas reserves and controlling gas prices in the coming years. Ranked first and second in the table of the world’s largest gas reserves respectively — Russia with just under 48 trillion m3 (tcm) and Iran with nearly 34 trillion m3 — the two countries are in an ideal position to do so.» “Based on the current Gas Exporting Countries Forum (GECF), a ‘gas OPEC’ will allow coordinating an extraordinary share of the world’s gas reserves and controlling gas prices in the coming years. Ranked first and second in the table of the world’s largest gas reserves respectively — Russia with just under 48 trillion m3 (tcm) and Iran with nearly 34 trillion m3 — the two countries are in an ideal position to do so.»
An analysis of some of the provisions of this article and other recent materials in the media shows that the creation of a global gas alliance (or cartel) looks more realistic than a few years ago. In particular, the MoU contains at least four key elements that can contribute to the creation of a «gas OPEC». First, Gazprom promised NIOC technical assistance in the development of the Kish and North Pars gas fields worth $10 billion. Secondly, Gazprom will assist in the implementation of a $15 billion project at the huge South Pars field on the maritime border between Iran and Qatar. Thirdly, Gazprom will provide technological assistance in completing projects for the production of LNG and the development of gas transportation infrastructure in Iran. Fourth, according to foreign experts, Russia may encourage other major gas powers to join in the gradual creation of a gas cartel. It is important to note that in 2017 Qatar and Iran signed a cooperation agreement on a number of contentious issues around the South Pars field, which can play a positive role in Qatar’s participation in the cartel. In this regard, stable relations between Moscow and Riyadh on oil and some political issues may be important, which will help smooth out some of the problems between KSA and Qatar on common gas interests.
Together, Russia, Iran and Qatar account for about 60 percent of the world’s gas reserves and were instrumental in creating the GECF, whose 12 members control more than 71 percent of the world’s gas reserves, 44 percent of its traded products, 53 percent of gas pipelines, and 57 percent of LNG exports. . Plans have been explored at various times to deepen cooperation among GECF members to the extent that it would become as influential in the gas market as OPEC is in the oil market. In particular, this concerned the development of trilateral cooperation (Russia, Iran and Qatar). Until recently, this idea was not implemented for a number of reasons, including Qatar’s unwillingness to join the Russian-Iranian alliance for political reasons.
In our view, there are signs in the short term that Qatar’s reticence about participating in the gas OPEC may be easing. The most important feature of Doha’s economic plans is that it will remain one of the leading LNG exporters in the world, especially taking into account the long-term agreements between Qatar Petroleum and Sinopec for the annual supply of more than 2 million tons of LNG to China over a period of 10 years, also with Pakistan more than 3 million tons annually for 10 years. In addition, Qatar has entered into long-term agreements with a number of other Asian countries.
Saudi Arabia can play an important role in the formation of a global gas alliance, which is implementing a long-term program for the development of gas infrastructure, incl. in terms of LNG exports, based on the huge gas reserves in the development of which the Russian Lukoil is actively involved. Therefore, the gas initiatives of the Minister of Energy of the KSA have certain prospects.
Conclusion
- The global energy crisis will escalate and in the coming years the role of gas in overcoming it will increase, especially in the context of the green transition. This is due to the environmental advantages of gas compared to other fossil fuels, as well as the prospects for using it to produce hydrogen and some types of products important for the world economy, especially fertilizers.
- As the share of LNG in the world gas trade and the scale of the corresponding infrastructure, incl. local, the formation of a global gas market is likely and, at the same time, the influence of regional markets on the global market will increase.
- If recently the impact of prices for oil and oil products (diesel and fuel oil) on gas prices seemed obvious, now the situation is changing. On the contrary, prices for gas and its products can influence the prices for oil and oil products. Without going into details, one can note the mutual influence on pricing in international trade in gas and oil — a new phenomenon in the world energy industry.
- All this could accelerate the creation of an international gas cartel, probably within the framework of the GECF.
5.Obviously, there is an increase in the potential for conflict in world politics, which will increase the influence of geopolitical factors on the system of international economic relations, primarily in the field of energy supply, incl. for gas trading.
- The unification of the main gas producers within the framework of the «Gas OPEC» based on the GECF will contribute to the stability and predictability of international gas markets, as well as ensuring the energy security of gas exporters and importers.
- In our opinion, a “gas alliance or cartel” can be created at the initial stage in accordance with a brief memorandum between the Russian Federation, Iran, Qatar, KSA (so far without GECF), the main provisions of which could be prepared and discussed within the framework of the annual Russian energy week (REN-22), scheduled for mid-October this year. in Moscow.
- One of the activities of the «gas OPEC» could be a gradual transition to payments in gas trade in national currencies and a reduction in the role of the dollar in pricing and settlements in international gas trade.
- «Gas OPEC» could actively participate in the global energy dialogue within the framework of the International Energy Forum (IEF), whose headquarters is located in Riyadh, especially since the GECF and the IEF have successfully cooperated in creating such an important platform as a data bank on the situation in the global gas industry “GasJODI”, which are regularly published on the IEF website.
- It would be possible to consider the advisability of creating an intermediate structure or mechanism for interaction between oil and gas exporting countries within the framework of OPEC +, i.e. between OPEC and GECF with the location of a temporary working secretariat in Moscow or St. Petersburg.