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Gas going the oil way?

The ‘era of cheap gas’ is over, said Russian Prime Minister Vladimir Putin following a 10-nation forum of gas exporters in Moscow last week, reports Fred Weir.

world Updated: Dec 27, 2008 01:38 IST
Fred Weir

The ‘era of cheap gas’ is over, said Russian Prime Minister Vladimir Putin following a 10-nation forum of gas exporters in Moscow last week.

That message will be reinforced by the creation of a new cartel, which some have dubbed a “gas OPEC”, which will soon set out to make Putin's words come true by enforcing monopoly controls on the natural gas market.

In the past the price of gas has closely tracked that for oil. In the past two years, as crude prices shot through the roof, Russia's state gas company Gazprom tripled its tariffs for its biggest customer, western Europe, to a high of $400 per thousand cubic metres in December.

But unlike oil, gas is not a product that can be easily shipped by road, rail or sea, and therefore there is no spot market in the resource. Gas requires dedicated infrastructure, pipelines and pumping stations, and has generally been sold mainly on the basis of long-term contracts.

The new technology of liquified natural gas (LNG), which will radicalize the market by making gas supplies more mobile, is still in its infancy. Russia is set to get its first LNG facility, on Sakhalin Island, in fully functional shape next year.

But meanwhile the price of oil has plunged by two-thirds, leaving a gaping hole in the Russian government's budget for 2009.

No wonder Russia, and other gas exporters such as Iran, Qatar, Libya and Venezuela, are keen to find a way to keep the price of gas from following oil into the dumpster. They were perfectly happy when the direction was up, but now it's a very different story.

“The expenses necessary for developing fields are rising sharply,” Putin told the forum. “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”.

For energy-importing countries, the new cartel is an extremely unwelcome headache.

Washington worries that the organization, like the original OPEC, could become politicized and become a bludgeon for the anti-status quo states, such as Russia and Iran, to hammer the West with.

But even nations like India and China, which have no significant political differences with Moscow, have a lot to fear, experts say.