Controlling gas

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Exactly 35 years ago, the Arab oil embargo sent western economies into their worst downturn of the postwar period. So some unease is understandable as natural gas behemoths Russia, Iran and Qatar seek to start a club with eerie similarities to the Organisation of the Petroleum Exporting Countries just as another nasty recession takes hold.

On paper at least, the budding “Gopec” appears nearly as formidable as the 48-year-old oil cartel. The troika control 57 per cent of known natural gas reserves – about the same proportion of crude reserves held by the three leading Opec members. North America and non-Russian Europe have only 5.3 per cent and are increasingly reliant on gas for heating and power generation.

That is where the similarities end. Unlike petroleum, natural gas is still for the most part split into regional markets served by pipelines. It is supplemented by a growing market for liquefied natural gas that, like crude, can be shipped to the continent where it fetches the highest price. Notwithstanding Gazprom’s sway over the European Union and success in bullying former vassal states, the economics of the two markets are different enough that a successful gas cartel is a pipe dream for now,

The LNG market requires hugely expensive facilities on both sides of the supply chain in order to work, plus specialised tankers to move the gas around. Getting it from places such as Qatar to big users such as Korea thus requires multi-decade contracts to support the necessary investment. Unlike crude, there is plenty of undeveloped “stranded gas” worldwide, so buyers place a premium on reliability. Iran, late to the LNG game, would see its gas stay underground if it played hardball with customers.

Decades from now, when current facilities are paid for, a cartel might work. But one would hope that future Gopec members learn from Opec’s folly. Its greed in the 1970s spurred conservation and development efforts that have left it a shadow of its former self.

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