As gas prices collapsed along with the world economy, producer countries, such as Algeria and Russia, suddenly found themselves kicked out of the driver’s seat they had occupied so long in contract negotiations.
Unlike oil prices, gas prices have not rebounded significantly and analysts believe producers are in for at least another two to three years of pain.
The problem is twofold: US production is strong because of technological breakthroughs in extracting gas from shale and the industry lacks a powerful cartel that can boost prices when they are low.
It was with this gloomy outlook that Chakib Khelil, Algeria’s energy minister, floated the idea of a gas cartel, which – like the Opec oil cartel – should reduce supply to boost prices.
Mr Khelil, who is also his country’s representative to the Organization of the Petroleum Exporting Countries, first hinted at the plan at Opec’s meeting in Vienna this spring.
“You have to lower [gas] supply,” Mr Khelil said at the time, advocating that producers aim to increase prices to $13-$14 per million British thermal units (Btu).
His comments reflected the growing concern of some producers, following the natural gas price rollercoaster that started with a peak in July 2008 of $13.70 per million Btu, leading to a seven-year low of $2.75 per million Btu in September 2009, and only a gradual improvement to $4 per million Btu by the time he made the remarks.
Today’s prices still hover around $4.2 per million Btu.
Analysts, who had been dismissing the idea of a gas cartel for years, cautiously suggested that this time producers could be forced into such desperation that some kind of agreement could emerge.
But it was not to be.
Mr Khelil made his official pitch to fellow producers on April 19, at the meeting of the Gas Exporting Countries Forum in Oran, Algeria. It did not go as planned. “It was a miserable failure,” is how one person who was there put it.
Qatar and Russia, the world’s biggest oil exporters and the two key countries to get on board, quickly made clear they would not be joining Mr Khelil in his efforts.
Even before the meeting, Sergei Shmatko, Russia’s energy minister, quashed the idea, telling reporters that cutting production to boost prices “is not possible”.
Qatar had just spent billions of dollars on installing enough capacity to supply 77m tonnes of natural gas a year for the next 25 years.
It came as little surprise that Abullah bin Hamad Al-Attiyah, the country’s energy minister, was not about to take Mr Khelil’s side.
But despite their tough stance, all the producers are being forced to make significant changes to the way they do business.
Even Qatar is having to reroute liquefied natural gas ships that had been destined for the US, to other regions, such as Asia and Middle East, where demand for imports has remained more robust.
Gazprom, Russia’s natural gas monopoly, has admitted that up to 15 per cent of its contracts are now no longer linked to the oil price.
As the spot price of natural gas dropped to a quarter of that of oil, buyers pushed suppliers, such as Russia, to break the traditional link between the two.
Another tactic has been to push suppliers to allow their customers to take less gas than the minimum requirement outlined in the contracts.
While western Europe has pushed for lower prices, Turkey is pushing Iran to give way on these “take or pay” clauses.
Such renegotiation of contracts not only reflects the shift towards a buyers’ market. It is this part of the equation that could eventually be the area in which suppliers could get together to flex their combined muscle, analysts say.
“If you want to engineer a recovery in demand, you need to show some restraint,” says Jonathan Stern of the Oxford Institute of Energy Studies.
But, as if things could not have got worse for Mr Khelil, the Gas Exporters Forum in Oran ended its session by announcing it wanted gas prices to go back to parity with oil.
“Nothing at this point is more guaranteed to fail,” says Mr Stern.
“If anything, gas prices are heading south and the gap is going to widen.”