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. Last Updated: 07/27/2016

Gazprom Proposes Natural Gas Cartel




PARIS -- The head of Russia's mighty natural-gas company proposed creating an international organization similar to the OPEC oil producers cartel to fight low prices for natural gas.


Rem Vyakhirev, the chairman of Gazprom, told a meeting of international gas-industry executives in Paris that creating such an organization was "a matter of principle."


Gazprom is the world's largest natural-gas producer, but it posted a nearly $6 billion loss last year as a result of Russia's financial chaos and a global slump in energy prices.


Vyakhirev proposed holding talks with Norway and Algeria, two other major natural-gas suppliers for the European market, as a first step toward creating the organization he proposed.


"The [market] price is too cheap for us," Vyakhirev said.


Participants in the meeting noted that the liberalization of natural-gas markets would make it difficult for producers to try to fix prices worldwide. Vyakhirev's speech received polite applause - but no more.


Vyakhirev argued that low prices for natural gas were preventing Gazprom from earning the kind of revenue needed to develop new gas-transportation routes and storage facilities.


"The situation in Europe for exporters is getting worse despite the growth in demand," Vyakhirev said.


The Russian gas executive warned that Europe could face an energy crisis unless it was ready to make investments in Gazprom that would allow the company to expand its production capacities.


Gazprom, Vyakhirev said, "doesn't have enough capital," and he urged European and Asian companies to invest in the Russian giant in order to develop fields in northern Siberia.


The failure of Russian consumers to pay for their gas supplies has deprived Gazprom of capital and is forcing the company to seek foreign investors, Vyakhirev said.


Gas from northern Russia must travel long distances to its markets in harsh weather conditions, making production there more expensive than in fields in more favorable climates, Vyakhirev said.


Gazprom also requires a capital infusion to help it develop transport routes across the Black Sea through Turkey and through Belarus and Poland to Germany, Vyakhirev said.


Most Russian gas exports for Europe now transit through Ukraine, but Gazprom has complained of high transit costs and is anxious to diversify transport routes to Europe.


Vyakhirev said he was interested in developing a "unified European gas transport system." Russia supplies 12 countries in Europe with gas, with Germany as its largest customer.