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. Last Updated: 07/27/2016

Khristenko Backs Gas-Pricing Group

ReutersIndustry and Energy Minister Viktor Khristenko arriving at a gas forum in Doha on Monday. He said the pricing group would meet at least six times this year.
Russia and other leading gas producers on Monday took a cautious step toward cooperation on prices, but stopped well short of creating an OPEC-style cartel.

The 15 member countries of the Gas Exporting Countries Forum -- which includes Iran and Venezuela, two strong advocates of a gas OPEC -- agreed to study the formation of global gas prices, a step that Algeria said would eventually lead to the creation of a gas equivalent of OPEC.

At a meeting in Doha, the capital of the Gulf nation of Qatar, the countries decided to set up a high-level organizing group consisting of deputy ministers or other senior energy officials to study gas prices. The group will meet at least six times this year, Industry and Energy Minister Viktor Khristenko told reporters after a closed-door meeting.

He did not elaborate on exactly what the group would study, but said the forum had made no decisions that would call for the establishment of a cartel. "Russia is ready to step forward as [the country] that will carry out the research into the issue of gas price formation," Khristenko said, Interfax reported.

The forum's member countries agreed to meet next year in Moscow, Khristenko said.

The high-level group will offer a chance for closer cooperation among global gas market players, Gazprom CEO Alexei Miller said on the sidelines of the forum, Interfax reported. "It's about joint research work on the mechanisms of price formation," he said.

Algerian Energy Minister Chakib Khelil said on the sidelines of the meeting that the effort would ultimately lead to an OPEC-style group. "In the long term, yes," he said, Reuters reported. "In the long term we are moving toward a gas OPEC. ... It will take a long time."

The high-level group would presumably aim to collect data on the costs of producing gas in various countries, said Valery Nesterov, an oil and gas analyst at Troika Dialog. "Without an idea of what shapes gas prices it is impossible to move forward and develop the coordination of ... trading policies and speak about efforts to influence the market," he said.

Global gas prices are currently either linked to oil prices or to the British thermal unit, which is the heat value of a specific amount of gas. "In the current gas market it's difficult to understand how the gas price is formed. There's no single standard," said Konstantin Batunin, an oil and gas analyst at Alfa Bank.

Ahead of Monday's forum, the European Union, which gets one-quarter of its gas from Russia, and the United States warned against a price-controlling cartel. Iranian Supreme Leader Ayatollah Ali Khamenei, backed the idea of a gas OPEC in January, prompting President Vladimir Putin to call it an "interesting" idea.

But Iran's Petroleum Minister Seyed Hamaneh backed down on a cartel on Monday. "There is no discussion about a cartel in this meeting. The cartel is not an issue," he told reporters before the meeting started.

Qatari Oil Minister Abdullah bin Hamad Al-Attiyah also played down fears of a cartel. "I hate the name cartel. We are not a cartel," he said before heading into the meeting, The Associated Press reported. "We are just here to consider our interests."

"There should be greater cooperation," Al-Attiyah said on the sidelines of the meeting, Bloomberg reported. "Western nations should not be concerned over the gas meeting. Consumers should wait and see."

Ton Van Lierop, a spokesman for the European Commission in Brussels, could not immediately comment on the outcome of the Doha meeting, saying no EU experts were available Monday, a public holiday in Belgium.

The countries represented at the Doha meeting collectively control 73 percent of the world's natural gas reserves and 41 percent of production. Other members include Algeria, Brunei, Indonesia, Malaysia, Nigeria, Oman, Qatar and Turkmenistan. Russia and Iran hold the world's largest and second-largest gas reserves, respectively.

An important condition required for a price cartel to emerge is increased production of liquefied natural gas, or LNG, industry experts say. A greater share of LNG on the market may give exporters more flexibility over prices than the current system of pipelines and long-term contracts.