Russian President Vladimir Putin has defended the long-term supply deals under which Russia exports …

From right, first row: Bolivian President Evo Morales; Venezuelan President Nicolas Maduro; Russia’s President Vladimir Putin; Iran President Mahmoud Ahmadinejad, Iraqi Prime Minister Nouri al-Maliki and other officials pose for a picture at the Gas Exporting Countries Forum (GECF) at the Kremlin in Moscow yesterday. Putin said loosening the oil-price link or scrapping contractual ‘take-or-pay’ clauses would eventually lead to higher costs, not only for producers who need price security to justify long-term investments, but also for buyers.

Russian President Vladimir Putin has defended the long-term supply deals under which Russia exports its gas and warned that abandoning them would undermine global energy security.

Putin won the backing of strategic allies at a summit of gas exporters in an ornate hall in the Kremlin yesterday, but the gathering exposed the challenge that flexible liquefied natural gas (LNG) poses to Russia’s pipeline gas supplies.

The Russian leader has, since he first became president in 2000, deployed state gas export monopoly Gazprom to boost his country’s influence on gas markets.

But with a growing flotilla of tankers supplying LNG to world markets, the long-term export contracts that tie the price of Russian gas to oil, and set minimum purchase requirements for buyers, have come under threat.

Putin said that loosening the oil-price link or scrapping contractual ‘take-or-pay’ clauses would eventually lead to higher costs, not only for producers who need price security to justify long-term investments, but also for buyers.

“What we are talking about, above all, are attempts to dictate economic terms that are unacceptable to producers of gas delivered by pipeline,” Putin told leaders from the 13-member Gas Exporting Countries Forum (GECF).

“Unfortunately, the advocates of such a policy do not understand that abandoning the fundamental principles of long-term contracts would not only inflict a blow on gas producers but also bring with them significant costs.”

Putin hit out at the European Union, where energy market reforms under the Third Energy Package threaten Gazprom’s control over the gas supply chain from wellhead to consumer.

Gazprom’s loss of pricing power in Europe, which accounts for more than half its gas revenues, has driven down its market value to $78bn from $360bn in 2008.

Analysts say that supply fundamentals – gas is abundant while oil is relatively scarce – will make it hard for Gazprom to uphold an export-pricing model that dates back to the Soviet era.

Gazprom’s export monopoly is also under threat from reforms that would allow Russian rivals such as Novatek and Rosneft to export LNG. Energy Minister Alexander Novak said that the necessary legislation would be passed and take effect this year.

Putin, who began his third spell as president in May 2012, won support on gas pricing from Venezuelan President Nicolas Maduro, Bolivia’s Evo Morales and Abdelkader Bensalah, chairman of the Algerian Senate.

But the Energy and Industry Minister of top LNG exporter Qatar said each member of the group has its own point of view on the development of the
sector.

“We should remember that our pricing policy should also be derived from the interests of consumers, not only of producers,” HE Dr Mohamed bin Saleh al-Sada told the summit, broadcast live on Russian television.

The GECF, holding its second summit, says that its members control 80% of world gas output and 70% of LNG production.

But many of its members are net importers, leaving Russia and Qatar as the biggest players on international markets. But the US, which has overtaken Russia to become the world’s largest gas producer, and Australia, which is expanding into LNG, pose challenges. Founded more than a decade ago, the GECF drew comparisons with the Organisation of the Petroleum Exporting Countries. “We don’t want to create a cartel,” Putin later told reporters. He said that Russia had won support from “all” GECF states for oil indexation, also expressed in a joint communiqué.

The GECF comprises Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. Iraq, Kazakhstan, the Netherlands and Norway are observers.

Reported by: Caye Global News, Gulf Times

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