North Sea’s Decline & Russia’s Intransigence: Gas Challenges & Opportunities

Russian President Vladimir Putin stated last week Russia is interested in the idea of an OPEC for gas producers. Although he also said that such an organisation would not attempt to be a price fixing cartel, as OPEC does, many observers will be sceptical given Russia’s propensity towards maintaining a politicised energy policy whilst concurrently denying that it does so.

Concern will perhaps be greatest in Western Europe, which increasingly relies on Russia gas supplies as the North Sea enters its twilight years. The decline of the North Sea is illustrated by the winding down of investment in new capacity by the Super Majors. Although a lot of North Sea exploration is being carried out by smaller companies, the fact is that pretty much all of the elephantine discoveries that are going to be made have been made, and it makes sense for the industry’s biggest players to chase opportunities in other places.
Hence, Europe has been looking outside of the North Sea for its gas, and in particular to Russia. But the problem with looking to Russia is its willingness to entertain ideas like an OPEC for gas producers, combined with a proclivity for showdowns with its neighbours over energy issues. The recent incident with Belarus is a case in point, even though it wasn’t quite as dramatic as the one with Ukraine in 2006. The lesson from both cases is that Russia isn’t easy to negotiate with on energy matters.

What might an alliance of gas exporters look like?

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