Gas Forum to Set Up Commission to Study Pricing Policy

DOHA Apr 09, 2007 (Dow Jones Newswires)

The Gas Exporting Countries Forum has decided to set up a high-level commission to study the issues facing the gas market, such as the pricing mechanism, infrastructure and relations with customers, Russia's oil minister said Monday.

Following discussions with the 15 members of GECF in Qatar, Viktor Khristenko said they had reached a consensus on the formation of a commission.

"There are a few issues like infrastructure, relations with customers and the development of pricing policies," Khristenko told reporters.

"These issues are important in the global dialogue and this is what influences the global dialogue," Khristenko said.

"In order to further coordinate and to work out the mechanisms and tools necessary for understanding this within the Gas Exporting Countries Forum, the decision was made to establish a high-level coordination committee to take on this task in the timeframe for the next forum," Khristenko said.

Officials and ministers from the world's leading gas exporters, including Iran and Russia, are meeting in Doha to discuss coordinating the natural gas industry.

Comments from Iran and Russia had led to speculation that the forum, a grouping of countries with significant gas reserves, could announce the formation of a gas pricing cartel with the clout of Organization of Petroleum Exporting Countries.

Gas Pricing Key For Cartel To Work

The emphasis on carrying out a review of how gas is priced is a clear move by gas suppliers to gain some control over the market.

Industry experts have commented that for a gas pricing cartel to work, the oil-indexing link on long-term contracts would have to be replaced with a different mechanism.

Speaking to reporters after his announcement of the GECF commission, the Russian oil minister said that ministers would not decide anything that could lead to the creation of a cartel.

But Algeria's oil minister took a different position.

"In the long-term, yes, we are moving to a gas-OPEC," Chakib Khelil told reporters. "But this won't happen until we have a liquid gas market," he added.

Earlier in the day, he explained that there was a need to move away from oil-indexed pricing.

"The relationship between the pricing of natural gas and oil is not strong any more. It has to be connected to nuclear energy, with solar energy, with bio-ethanol," Khelil said.

"So we need to look again at the value of natural gas...(it) is not included in the pricing of gas right now," he added.

Most gas sold on contract through pipelines or as liquefied natural gas is priced in relation to oil and its products.

In only a few countries, such as the U.K. or the U.S., gas is priced as a separate commodity according to its own supply and demand dynamics.

"The first thing we need to do is carry out a study to find out what natural gas pricing is related to really in this new environment. Is it still related to fuel oil? I doubt it. Is it still related to coal? I doubt it. Is it related to gasoline? Maybe, because of GTL technology," Khelil said.

Allaying Consumer Concerns

Responding to consumer concerns about a gas cartel, Khristenko said the world's biggest gas suppliers wanted to set up the commission to have a voice and be able to participate in the global energy dialogue.

"This nervous reaction to the forum started not yesterday, but has been around for some time," he said.

"It could be explained partly by the tensions in the energy dialogue which has been started by the Group of Eight industrialized countries," he added.

Khristenko said since the last G8 summit, many leading consumer countries had been voicing their concerns about energy issues.

"Energy players such as the U.S., the EU, China, Japan and Italy have revised their energy strategies and the global energy dialogue is becoming more global," he said.

"It is important that the dialogue is not on the one-channel mode, so that concerns and risks only could be voiced. But it is important that both producers and consumers could voice their concerns, see their opportunities and their threats."

As the holder of the world's largest gas reserves and the host of the next GECF meeting, Russia will lead the formation of the commission, which will be made up of deputy ministers.

"It has been approved by a consensus of ministers. The group will continue its work in the nearest future," Khristenko said.

"Our forum of gas exporting countries should continue existing as such and should continue to keep up its understandable, transparent and coordinated position toward the consumer countries, producing countries and other such international organizations," the minister added.

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