How Russia and its allies will be able to turn up

By Alexander Temerko, former Yukos vice-president

The gathering of Russia, Iran and other major international gas producers tomorrow in Qatar is an ominous one for the UK and other European countries. Western leaders have for years had to deal with Opec, which controls a large chunk of world oil trade. They now face a potential new natural gas cartel. Indeed, some members of the Gas Exporting Countries Forum openly talk about this.

Of course, they will use friendly words – ‘co-ordination’, ’security of supply’ and ‘predictability’. But what they have in mind is an organisation that will behave in ways entirely hostile to the market-oriented goals for which UK governments have pushed for two decades. It may not happen straight away – but it will happen, and more influence over gas markets will bring more geopolitical muscle.
Now a newly confident Russian political elite is seeking to play an active role in global politics. Energy is considered one of the main tools for its comeback as a superpower.

Reinforcing this are the needs of the Russian gas monopoly Gazprom. Its biggest fields are in the declining production phase. To launch new fields it needs multi-billion-dollar investments. At the same time, it faces mounting costs to maintain its pipeline infrastructure. The future price of gas will be influenced by the rate of return on massive investments in exploration and production over the next five to seven years.

Gazprom’s motto is ‘We only start producing gas that has already been sold’ and it will not develop new fields without first signing long-term contracts. And these must guarantee Gazprom a price high enough to cover not only its own expenses, but also the financing it provides to various of the Kremlin’s political projects.

Observer