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. Last Updated: 07/27/2016

Putin Warms to Idea of a Gas OPEC

A confident President Vladimir Putin flexed the country's energy muscles Thursday, saying Russia would consider the "interesting" idea of a gas OPEC and arrange for more oil shipments to bypass transit countries.

"A gas OPEC is an interesting idea. We will think about it," Putin said at a 3 1/2-hour annual news conference in the Kremlin, his longest to date.

Putin was replying to a question from a BBC reporter about whether the subject of a gas equivalent of the Organization of Petroleum Exporting Countries would come up during his visit next week to Qatar, which holds the world's third-largest gas reserves.

The idea of a gas producers' cartel was raised last year, when Russia made energy security a theme of its Group of Eight presidency. The idea resurfaced Sunday when Iran, the holder of the world's largest gas reserves after Russia, suggested the two countries could cooperate on gas.

"We agree with the Iranian specialists [and] … with several other countries that produce and supply large quantities of hydrocarbons on the world market," Putin said. "We already try to coordinate our actions on the markets of third countries and we intend to do it in the future."

Putin made an effort to allay possible fears that such cooperation would rack up prices. Russia will not seek to set up a formal cartel, and the gas exporters will see their chief goal as "unconditional and reliable supply to the main consumers of energy resources," Putin said.

The comments are Putin's strongest so far in support of a gas equivalent of OPEC. Last June, Putin downplayed the idea of a cartel at a Shanghai Cooperation Organization summit, saying he saw cooperation on gas as merely a joint enterprise.

Last month, Russia and Algeria signed an energy cooperation deal, prompting concerns in Europe that the two countries could seek to control gas supplies and prices. Gazprom supplies one-quarter of Europe's gas needs, while Algeria accounts for almost 10 percent of the European market.

Putin also used Thursday's news conference to repeat his assertion that the Kremlin was not using energy supplies as a political weapon.

"The thesis is being forced on us all the time that Russia uses … economic leverage to achieve foreign policy goals. This is not so," he said, insisting that past conflicts were commercially based. "We are not obliged to subsidize other countries' economies in huge volumes that are comparable to their budgets."

The West accused the Kremlin of using energy for political ends after Gazprom reduced gas supplies to Ukraine last January amid a pricing dispute.

In the latest price spat, Russia's longtime ally Belarus had to agree to a steep hike for gas in December — a dispute that spilled over into a three-day stoppage of oil supplies to Europe in early January.

A repeat of the standoffs with Ukraine or Belarus is unlikely, Putin said. "I believe the negative response that we get to a transition to market-based relations is generally in the past," Putin said. "We have agreed on everything with the main transit nations and signed the documents."

Putin on Thursday gave his backing to a plan to increase the supply of oil to the country's main Baltic Sea terminal, a measure he touted as one ensuring the security of supplies.

Pipeline monopoly Transneft has begun work on expanding the terminal in Primorsk to handle 50 million more tons of oil per year, Putin said. The terminal, an alternative to the overland transit route to Europe through Belarus, currently ships 75 million tons annually.

Combined with the planned construction of Nord Stream, a gas pipeline under the Baltic Sea to Germany, the terminal would alleviate Russia's dependence on transit countries that get $4.2 billion per year in fees from Russia, Putin said. "This figure, in our opinion, is off the scale," he said.

Russia can cope with changes in European oil and gas demand if the continent chooses to diversify its supplies, Putin said, as the country is building an oil pipeline to the Pacific coast and looking at a plan to build an oil pipeline to China. "Of course, they try to scare us a little. When we hear that they will diversify sources, we should think about where we will sell our commodity," Putin said.

Putin also noted that Russia was considering a second pipeline under the Black Sea. That pipeline could lead to Hungary, Austria and Italy, or it could take oil to Israel, he said.

At the start of the news conference, Putin showered his audience with a bunch of rosy economic statistics. The capitalization of the stock market rose by 80 percent and neared $1 trillion last year, which makes Russia one of the world's top 10 stock markets, he said. Some of the country's largest companies, including Rosneft, sold tens of billions of dollars' worth of shares in initial public offerings last year, he said.

Private capital Inflows were $41 billion last year, of which $31 billion was foreign direct investment, Putin said, reversing the trend of capital outflows of up to $25 billion in recent years.

Gross domestic product rose by 6.7 percent to 6.9 percent last year, Putin said, adding that the final percentage would be calculated by the end of March. Last year's growth outpaced the 6.4 percent in 2005, he said.

Russia will try to bring inflation down to between 4 and 5 percent by 2010, Putin said. Last year's inflation rate was 9 percent, the first single-digit rate since the Soviet collapse.

Stephen O'Sullivan, co-head of research at Deutsche UFG, said there was nothing unexpected in Putin's comments. The stock market was up 2 percent, so investors clearly were not unnerved by any of his statements, O'Sullivan said. Putin's support for a gas OPEC was not unusual and made perfect sense, he said.

"Consumers have the International Energy Agency and it's understandable that producers want a forum as well," he said.

The dependence of the gas markets on long-term contracts would make it difficult to coordinate prices, some analysts have said. O'Sullivan countered that at the inception of OPEC, the oil market was also reliant on long-term contracts but that changed. The gas market is also changing with options such as spot sales and liquefied natural gas, he said.

Vadim Kleiner, head of research at Hermitage Capital Management, said the gas OPEC idea was realistic. It would hardly have an immediate impact but could in the longer run prompt gas exporters to sever the implied link with oil prices, he said. Currently, The Netherlands and Norway are able to get better prices for their gas despite being smaller suppliers than Gazprom, he said.

Staff Writer Miriam Elder contributed to this report.