Tags: Energy | Ministers | Boost | Natural | Gas | Prices

Energy Ministers Aim to Boost Natural Gas Prices

Monday, 19 Apr 2010 10:27 AM

Energy ministers from the world's biggest natural gas producing countries gathered Monday in Algeria to address ways of boosting slumping export prices, with the most ambitious among them pushing for a cartel-like organization that could increase rates by agreeing on output quotas.

The Gas Exporting Countries Forum, or GECF, brings together 11 ministers from countries ranging from Qatar to Russia and Iran, and represents some 70 percent of the world's natural gas reserves.

Algerian Energy Minister Chakib Khelil, who headed the ministerial meeting in the coastal city of Oran, said he hoped decisions reached Monday would "mark a new era for our organization."

Gas prices have dropped by nearly 50 percent over the past two years, mainly because of decreased demand and surging American production. The Algerian minister said that the U.S. has largely stopped importing foreign gas and that is a major reason behind plunging prices.

"Forecasts are rather worrying," Khelil said at the opening of the forum. He said he didn't expect international demand to reach 2008 levels — before the global economic meltdown — before at least 2013.

Current prices, at about $4 per million British thermal Unit (BTU), are about 20 times lower than oil. Traditionally, natural gas is only about 10 times cheaper than oil, Khelil says.

Low prices are dangerous in the long-term, he said, because natural gas extraction and transport require huge investments, which companies and states won't make if revenues are too low.

"A new model of cooperation must be devised" to achieve a "stable" gas trade and fair prices that favor long-term investment and guarantee supply, Khelil said.

The energy minister for Qatar, the world's largest exporter of Liquefied Natural Gas, also worried over low rates.

"We must find a mechanism for a just price for gas and to stabilize the market," Abdullah bin Hamad al-Attiyah told reporters ahead of the forum.

But Qatar and Russia, which holds the largest reserves, both stated that reducing exports was not their favored solution. Though export quotas have long been the Organization of Petroleum Exporting Countries' means to sustain prices, several countries resist the idea of transforming the gas forum into a cartel that would fix exports as OPEC does for oil.

"It would be difficult to reduce output as a way to influence prices" because of the way gas is extracted, shipped and sold, Russian Energy Minister Sergei Shmatko told reporters.

Libya's top energy official, Sokri Gahnem, also said he didn't expect energy ministers to agree to turn the GECF "into a gas equivalent of OPEC."

Officials said other price-boosting options to be discussed Monday could focus on bridging the gap between short-term trading on Liquefied Natural Gas, or LNG, and long-term contracts for non-liquefied gas. This could mean more closely indexing rates for LNG to oil prices.

Natural gas was traditionally sold for a time range of up to 25 years with a price fixed by contract between the producing country, the oil company working the wells and the consumer country. But the United States, and Europe to a lesser extent, now also buy liquefied gas on "hub" markets that trade short-term supplies.

These short-term trading prices have been driven steeply down by the U.S., which has found new means of extracting "non-conventional gas" at home. Australia is also expected to shortly become a large producer, further driving down short-term trading rates.

The price spread between short- and long-term contracts means many consuming countries, including those in Europe, have shifted to buying more gas on the market rather than through their traditional partners.

Exporters like Algeria, which has some of the world's largest gas reserves and sells nearly all its production to Europe, fear European firms won't help them invest in new projects if the long-term price gap remains too wide.

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