Russia hosts new gas body, faces OPEC ire over oil

MOSCOW Tue Dec 23, 2008 7:50pm GMT

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MOSCOW (Reuters) - Russia, the world's top gas exporter, hosted the founding of a formal gas producers' group on Tuesday but faced criticism from OPEC for refusing to join in cutting oil output to support energy prices.

With Prime Minister Vladimir Putin presiding, energy ministers from 12 gas exporting countries, many of them OPEC delegates, met to create a new gas group that they said could benefit consumers and would not control output or prices.

The event, partly meant to increase Russia's clout in global energy diplomacy, did not go smoothly for Moscow.

Concern about falling prices and flagging demand quickly surfaced as country representatives said Russia should have sacrificed some of its own output to back up President Dmitry Medvedev's promise to support OPEC oil production cuts.

The Kremlin's critics said an important way to help gas prices is to bolster the oil price, which they reflect.

"We needed to redress the situation to the market of oil so as to redress the situation in the gas market," Libya's top oil official, Shokri Ghanem, told the ministers.

"We are still waiting for a declaration from the Russian Federation that they are cutting their (oil) production not only to support the (oil) market, but also to support the gas market," Ghanem said.

Russia, which is also the world's No.2 oil exporter, has said it is considering all options, including joining the Organization of the Petroleum Exporting Countries, to defend its national interests.

However it did not make any firm pledges when OPEC minister, meeting at Oran in Algeria last week, agreed their deepest production cuts of 2.2 million barrels per day.

OPEC's President Chekib Khelil told Reuters on the sidelines of the meeting that Russia had enjoyed the benefit of OPEC's cuts without sharing the pain.

"If there was no OPEC reductions in September and October, I think we would have seen prices today at maybe $20 (per barrel). So it was because of OPEC that revenues for Russia were at $40 now, not at $20," Khelil said.

To read the Reuters interview with Khelil.

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The gas group is being founded on the basis of an existing informal club called the Gas Exporting Countries Forum (GECF), which includes 16 states such as Algeria, Iran, Qatar, Venezuela, Indonesia, Nigeria and others.

Western consumers are watching the meeting closely, worried that the group will try to set gas prices and manipulate supply.

European consumers, in particular, are edgy about their main supplier gaining more clout at a time when Moscow is threatening to yet again cut supplies to Ukraine as it did in 2006, exposing the continent to gas shortages in the middle of winter.

The forum members deny they are going to control prices and said the gas market is structurally unsuited to such influence.

Nigerian Petroleum minister Odein Ajumogobia told Reuters: "The state of gas development is very different from oil. With oil you have one international oil price, with gas you have domestic, international export price, etc."

They say the main goal of the new group will be to monitor the gas market and conducting joint research.

"The difference between OPEC and the forum is very simple - OPEC looks at today, what happens on the market and makes the decision," Khelil told Reuters.

"The forum, of course, looks on today because it has to, but it's more forward looking. It cannot control the volumes and price for the next 10 years because it's locked into long-term contracts and also the price of gas is locked into oil."

But members did not rule out eventual coordination on price.

"A very important thing is to have the cooperation, to agree some policies in matter of the price, in matter of development," Venezuelan oil minister Rafael Ramirez told reporters. "And in the beginning these will be the objectives of this organization."

Russian officials have said the ministers would agree on a charter that would make GECF a more formal organization with a headquarters in Russia's second largest city of St Petersburg, although Qatar has also proposed Doha as headquarters.

Russia's Gazprom, the world's largest gas producer, which supplies Europe with a quarter of its gas, earlier this year signed a deal with Iran and Qatar, setting what it called a "big gas troika" to coordinate market policies.

(Additional reporting by Vladimir Soldatkin and Melissa Akin, writing by Tanya Mosolova and Melissa Akin, Editing by Anthony Barker)

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