Things are getting interesting...

…might be time to make a move. Long LNG.

Qatar Shows Interest In Natural-Gas Cartel
By JAMES HERRON, WALL STREET JOURNAL
February 13, 2007; Page A2

Qatar's interest in exploring the creation of an OPEC-like cartel for natural gas adds another major producer to a group that includes Russia and Iran. Even so, industry experts say the nascent effort faces significant obstacles, ranging from a fragmented market to a history of noncooperation among the world's biggest holders of reserves.

Russian President Vladimir Putin and Qatari Emir Sheik Hamad bin Khalifa Al Thani said yesterday, at a meeting in Doha, Qatar, that they wanted competing gas producers to cooperate more. Mr. Putin said he would send a team of experts to a natural-gas conference in Doha in April, where they would discuss details of building a cartel. (Putin is serious – he wants to control the world through power and is feeling unstoppable, which is why he feels freedom now to make open anti-American comments. Such words precede actions. Putin is on a Middle East tour for more than one reason.)

The leaders of Russia, the No. 1 gas producer in terms of reserves, and No. 2 Iran have been talking recently about creating a group similar to the Organization of Petroleum Exporting Countries, which manages its output in an effort to sway crude-oil prices world-wide. If such a group were formed, the inclusion of No. 3 Qatar -- a major producer of liquefied natural gas, or LNG -- would give it significant clout. (and the rest of the dominoes fall into place)

But forming such a group could be difficult. Sheik Hamad said he supported the discussions, but he was unsure whether a gas cartel would be able to command the same degree of market control as OPEC does.

Gas demand is climbing amid global economic growth and because it burns cleaner than other fuels. But gas markets are fragmented, in part because transporting gas overseas can be difficult, complicating efforts to form a single global market, like oil, in which a group of producers could hold sway. LNG, which is natural gas cooled into liquid form and shipped overseas via tanker, has moved natural gas closer to a world market, but it remains a small part of global use. (Except Russia has plenty of tankers ready to go and more being built).

Also, gas tends to be sold through long-term contracts. That means a cartel would have little influence on such arrangements, Sheik Hamad said in a press conference in his presidential palace.

Past efforts haven't led to significant cooperation among gas producers. Russia, Qatar and Iran are members of the Gas Exporting Countries Forum, which was formed in 2001 but hasn't met since 2005.

Jonathan Stern, Director of Gas at the Oxford Institute For Energy Studies, said Mr. Putin's talk of closer cooperation among gas exporters isn't the same as a cartel and "doesn't mean a price-setting or volume-setting organization." He said Russia and Qatar, as gas exporters, don't have much in common, and they have much more potential to be competitors, especially in the European market. (Putin can be a very persuasive person in dissuading competition and is more than willing to give generous incentives).

A spokeswoman for the International Energy Agency said a cartel that raises prices "will encourage consumers to reduce demand or switch to other fuels. This is particularly true for gas, which can be substituted with coal and nuclear." (Except coal is under attack in the US and nuclear has tremendous fixed costs, and impossible for developing countries that can still afford Gas/LNG).

Julie Reside, a State Department spokeswoman, said there has been talk of a possible "gas OPEC" for many years, with no result. "I think experience has shown that free and open markets work best for both producers and consumers," she said.

Russia has sparked concern in the West that it is using its vast energy reserves as political leverage. (No Shit) Mr. Putin has dismissed the criticism, and he has defended moves to raise gas prices on some customers as an effort to put market prices in place after years of lower prices. (That's why he's been doing it now and all at once, knowing full well that it would be ill received, instead of instituting gradual programs years ago).

Putin has a master plan. Russia will be getting very interesting this year leading up to the elections and beyond. Stay on the sidelines or get in the game, either way there will be fireworks and money to be made.