x Abu Dhabi, UAETuesday 25 July 2017

Gas forum seeks oil price link

The Gas Exporting Countries Forum has signalled it will not cut output to raise gas prices, although it considers low prices are a major concern.

The 'gas OPEC' says it will not increase production.
The 'gas OPEC' says it will not increase production.

The Gas Exporting Countries Forum (GECF) has signalled it will not cut output to raise gas prices, although it considers low prices are a major concern. The group, which some analysts have dubbed the "gas OPEC", was more interested in stabilising gas prices than in raising them, Sergei Shmatko, the Russian energy minister, said.

The GECF has picked a Russian, Leonid Bokhanovsky, as its first secretary general. An early task for Mr Bokhanovsky, the vice president of the Russian energy engineering and construction company Stroytranzgaz, may be advising ministers on how to restore the close link between gas and crude prices. The commodities have moved in different directions on international markets this year. Addressing a one-day meeting of the group in Doha yesterday, the emir of Qatar, Sheikh Hamad bin Khalifa Al Thani, called for alignment of gas and crude prices.

"The increase experienced by the oil price this year has not been followed by an improvement in gas prices, and we hope that will only be temporary," Sheikh Hamad said. "It is necessary to work to restore the correlation between the price of oil and gas, and the decisions taken by this board must be equal to our ambitions." On Tuesday, Chakib Khelil, the Algerian oil minister, said gas producers could justify investing in new projects only if they were backed by long-term gas supply contracts linked to the price of crude oil.

"The bad situation in the gas market, that's what we are going to talk about. We need to do something about that," Mr Khelil said before the meeting. As crude rose during most of this year, gas prices on North American and UK markets sank to multi-year lows last summer. They are still only at about half their levels of a year ago, in a season when heating demand is usually high. That has put pressure on gas sales in Europe and Asia, with many consumers seeking to renegotiate multi-year supply contracts.

Japanese utilities paid 46 per cent less for liquefied natural gas (LNG) in October than a year earlier, government data showed. The global recession caused worldwide demand for gas to plunge just as North American producers were increasing output from large shale gas deposits. At the same time, a number of established gas exporters, including Qatar and Russia, and newcomers such as Equatorial Guinea and Yemen, were bringing large new LNG production facilities on stream.

Last month, the International Energy Agency (IEA), which advises developed countries on energy issues, warned that the "acute glut" of gas could persist for several years. "This glut could have far-reaching consequences for the structure of gas markets, with suppliers to Europe and Asia-Pacific coming under pressure to modify pricing terms and to cut prices to stimulate demand," the IEA said. Ibrahim Ibrahim, the economic adviser to Sheikh Hamad, said little could be done to support gas prices in the short-term. "We are not talking about using production itself to lift the price," he told Bloomberg.

Nobuo Tanaka, the executive director of the IEA, warned against that strategy yesterday. "We are against any form of cartelisation," Mr Tanaka said. "If a gas OPEC were created to control production or investment, it could create problems for the future." @Email:tcarlisle@thenational.ae