Likely gas cartel portends a bad omen for India

It was early September 1960, close to half a century ago when the first seeds of an oil cartel was sown by five oil producing nations — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela — who got together to form the Organisation of Petroleum Exporting Countries (OPEC), which today accounts for 79% of the global crude oil reserves. Four decades later, at a time when the world is looking for alternative sources to meet their growing energy needs, key producers and political heavyweights in the energy space are talking of forming a cartel yet again. This time for gas, the new form of energy of the 21st century. A gas cartel on the lines of OPEC could divide the energy map of the world between the producers and consumer countries.

Russia, which has emerged over the last few years as a strong energy power in the world, is now hoping to cash in on its mineral reserves to play a pivotal geo-political role in the years to come. Russia and Qatar are the two largest gas producers in the world and any move to form a cartel for gas is sure to send alarm bells ringing for most of Europe and large economies of Asia.

Russian President Vladimir Putin in his recent visit to Qatar and Saudi Arabia has hinted at the possibility of forming a gas OPEC to collaborate with gas producing countries like Qatar, or even Iran. The idea was to represent the interests of producer countries to influence the global market. ‘We do not reject the idea of creating a gas cartel,’ Mr Putin is reported to have said just hours after arriving in Qatar after two days of Saudi visit. European nations, which depend on Russia for 44% of its natural gas, will protest against any such development. Recent instances of gas supply disruptions following a spat between Russia and Belarus in December end is still fresh in one’s mind. A gas cartel at this stage is expected polarise the energy starved world.

India, which has identified gas as the prime energy source in this century as opposed to the dependence on hydrocarbon liquids in the last century, too will need to spare a thought on the recent developments. For one, India has already struck long-term gas supply deals with Qatar and has developed its first LNG terminal at Dahej, Gujarat, fuelled by gas from Rasgas Qatar. Efforts are on to strike more such deals with Qatar, Australia and even Russia to provide the much needed energy security for the country. Talks were on between Russia and India to explore possibilities of shipping gas as LNG from the Sakhalin fields in Russia. A gas cartel, which would dictate global gas prices, may end up jacking global prices in line with the global crude oil market. For large gas producing nations like Russia and Qatar, a cartel would ensure stability of prices and upsides for their economies which are largely energy driven.

However, forming a gas cartel may not be an easy job. For one, oil and gas are different in their properties. While crude oil is global commodity, gas is still largely regional, which differs from region to region. According to energy experts, while 60% of the global crude is traded in global trade markets, almost 93% of global gas is still supplied through pipelines based on long-term gas contracts. So while global gas prices are dictated by demand-supply forces and volume of global trade, gas prices are ruled by contracts between consumers and producers.