In the pipeline?: gas infrastructure in Saudi Arabia
'Gas Opec may freeze out contractors'
International oil companies may be frozen out of many potentially lucrative gas projects as producing countries work more closely together, consultantcy Wood Mackenzie said today.
A report by the energy consultants does not see the Gas Exporting Countries Forum (GECF), which met to discuss increased co-operation over the weekend, as wielding the kind of market power OPEC enjoys.
But an "Organisation of Gas-Exporting Countries" could mean thin pickings for western oil and gas companies if producers share their expertise and capital more closely.
"If the group could be more self sufficient, that there's greater scope for technology transfers and also access to capital etc, then I think that this group of countries may prefer to work together than give projects to the international oil companies," Ben Hollins, head of European gas consulting at the Edinburgh-based analysts told Reuters.
"I don't think it's fair to assume that international companies will always get the opportunities that they may historically of had."
Hollins said some contracts requiring specific technical expertise in difficult fields, for example tricky deep-water or Arctic drilling, may still be offered to companies like Norway's Statoil, but these opportunities could be few and far between as the gas producing countries huddle closer together.
The big gas consumers of Europe and North America are concerned the GECF, which has not tried to influence gas prices, could form a cartel to push up the price of the fuel many use for heating, chemicals and power generation.
But Wood Mackenzie thinks that even if the GECF tried to, controlling global gas prices would be much more difficult than it is with oil.
"We believe that whilst a [cartel] would not operate in the same way as Opec (which seeks to influence oil production levels and hence price), it could nevertheless have a material impact on future global gas market dynamics," Hollins said.
An oil cartel's sphere of influence would be limited by the restrictions imposed by long-term, oil-indexed gas contracts and by the physical limitations of the gas trade compared to oil, the report said.
And if they do push up prices, gas producers also run the risk losing sales because gas is more readily substitutable in the power sector, an increasingly important consumer, than oil is in the transport sector.
"It is clearly not in their interest to destroy future gas demand by adopting policies that spur the development of alternative fuels and technologies," Hollins said.
Nevertheless, the potential influence of a gas cartel would still be significant and likely to grow considerably in the future, the report concludes.
Possible members - including Iran, Algeria, Russia, Qatar, and Venezuela - control around 60% of proven global gas reserves. Their influence on prices could increase as long-term contracts currently linked to oil unwind and new opportunities arise to either extend the old contracts or negotiate new ones, the consultantcy said.
But it also appears to be in producer's best interests to keep the existing oil price linkage going.