Russia, Iran and Qatar held talks in Tehran yesterday about forming a cartel for natural gas that would resemble the OPEC cartel for oil. But the structure of the natural gas business makes it unlikely that a gas OPEC would get off the ground anytime soon.
The lure of a gas OPEC is great. Most of the world's richest nations -- European countries and Japan -- depend heavily on natural gas; as concern grows about greenhouse gas emissions, natural gas is a cleaner choice than coal. So the three nations that Russia's natural gas company called the world's "gas troika" could have a lot to gain if they limit supplies to pump up prices. Together, the three control more than half the world's proven natural gas reserves.
But the mechanics are complicated. Unlike oil, which can be shipped by pipeline or tanker or truck, natural gas must travel through pipelines or special tankers with expensive terminals to turn it into liquefied natural gas. Before building such terminals, companies and countries usually lock in long-term supply contracts. Qatar has been doing this for the past couple of years and has made many big commitments. Iran, by contrast, has been struggling to find pipeline routes because of its political isolation. Logistically, it would make sense to have pipelines connecting it with Iraq and Turkey, or Georgia and Europe, or Pakistan and India. But those routes are full of political obstacles. (Iran also has rapidly growing domestic consumption.) Russia already has a great deal of market power over Europe on its own, because it supplies 25 percent of Europe's gas. But exercising that power would have all sorts of political fallout.
Consuming countries aren't exactly holding their breath for a G-OPEC kind of arrangement. Though other gas producers possess smaller reserves, Europe is busy trying to build new pipeline links to diversify supplies. There are pipelines to Algeria and Libya as well as to the big reserves in the Caspian region.
Even without a new natural gas cartel, however, big consuming nations face big constraints and long-term dependence. Russian officials in the past have visited Algeria to try to coordinate policies. In the Caspian region, competition is breaking out for access to supplies. Russia has been competing with European pipeline promoters for Turkmenistan's natural gas, most of which goes into Gazprom's pipeline system.
"In the Caspian, competition is quickly growing," said Mihaly Bayer, an ambassador at large for Hungary's foreign affairs ministry who is responsible for promoting the proposed 3,300 kilometer, 7.9 billion euro Nabucco pipeline to the region. "Russia would like to buy more gas. China would like to buy the same gas." Bayer was recently in Washington.
In the early 1980s, the Reagan administration warned Europe about building gas pipelines to Russia that would make the continent vulnerable to Moscow. For a quarter century, those fears have turned out to be largely unfounded. But the mere meeting of the troika yesterday in Tehran should be enough for all natural gas consuming nations to remember one of the most crucial pieces of advice when it comes to energy supplies: Diversify, diversify, diversify.