Putin says gas Opec idea 'interesting'

Russian President Vladimir Putin said today that the concept of forming a group of gas-producing countries was interesting but he did not want to see a group like the Opec oil producers emerge.

Putin's first indication that Russia could participate in a gas exporter's group will be deeply worrying to the European Union, which takes about a quarter of its supplies from Russia and has been keen to diversify its sources.

"A gas Opec is an interesting idea. We will think about it," Putin said at his annual news conference in the Kremlin, days after Iranian Supreme Leader Ayatollah Ali Khamenei publicly floated the possibility.

"In the first place we agree with the Iranian specialists and partners in some other countries that are big gas producers.

"We are trying to co-ordinate our efforts in third country markets. We do not intend to set up a cartel but we will continue to co-ordinate our activities, bearing in mind the key goal of serving the energy security of our customers."

Iran state television reported Khamenei as saying on Monday: "Iran and Russia can establish the structure for an organisation of gas co-operation like Opec as half of the world's gas reserves are in Russia and Iran."

Julian Lee at the Centre for Global Energy Studies told Reuters the dominance of long-term contracts in the gas market meant it would be impossible to form a cartel overnight, but Putin might be looking to future developments that could increase liquidity.

"I think he's very much keeping his options open," Lee said. "Until now he's always been fairly cold and quiet on the issue.

"I'm sure he's looking ahead to rising LNG (liquefied natural gas) trade and perhaps to rising spot trade in gas but I don't think we'll see anything happening quickly."

But Russia's track record also showed the world's top gas producer was unlikely to act in anybody's interest but its own.

"I think history suggests that Russia is not philosophically inclined to cutting production to support prices," he said.

Putin visited Algeria last month and presided over the signing of a co-operation agreement between Russian gas monopoly Gazprom and Algerian state energy company Sonatrach, the top and third largest gas suppliers to the European Union.

The visit triggered accusations that Russia and Algeria were seeking to corner the European market for gas, which will rely increasingly on imports as North Sea production declines.

EU Energy Commissioner Andris Piebalgs called for an explanation from the two countries, fearing they could use their 35% market share to exploit their position through a partnership deal that could lead to price-fixing.

Analysts say fears of an attempt to fix the market are overblown, and Lee said there was a positive side to the idea of a gas Opec, even for consumers.

If the gas market was liquid enough to make a cartel workable, it would also provide options for European buyers who are now dependent on Russian pipelines, he said. And a gas Opec might reduce price volatility, just as the oil grouping had.

Russia and Iran are members of the Gas Exporting Countries Forum (GECF), launched by Tehran in 2001, a talking shop for the world's top gas producers. Major gas players Algeria, Nigeria, and Qatar also belong.

Since its creation, the group has strenuously denied it aspires to become the gas world's equivalent of the Opec.

Russia and Iran are the world's top and third-largest holders of gas reserves respectively. Iran's reserves are estimated at 940 trillion cubic feet or more and Russia's at between 1680 trillion and 2360 trillion cubic feet.

World reserves are estimated by industry experts at between 6100 trillion and 7000 trillion cubic feet.