5th Jul 2022

EU unfazed by Putin's 'gas OPEC' idea

Russia is flirting with plans for an OPEC-type gas suppliers' club president Vladimir Putin said in his annual "question time" TV show on Thursday (1 February), but Brussels and the International Energy Agency (IEA) are unfazed by the prospect.

"A 'gas OPEC' is an interesting idea. We will think about it," Mr Putin said. "We agree with Iranian experts, partners and some other countries that produce and supply hydrocarbons to world markets in large volumes. We are already trying to coordinate our actions to develop markets."

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  • Putin on TV Thursday: the EU is having trouble reading his next move (Photo: kremlin.ru)

In a confusing aside, he added that any gas club would not be a price-fixing "cartel." But one of the primary functions of OPEC - the Organization of the Petroleum Exporting Countries - is to control the supply and price of Middle East oil in the face of powerful buyers such as the EU and the US.

Mr Putin's statement comes days after Russian officials held gas talks in Algeria and Iran, with another trip to Qatar scheduled for 12 February. Russia has the world's biggest gas reserves and supplies 25 percent of EU gas. Algeria supplies 10 percent, while Iran and Qatar hold the world's second and third largest reserves, respectively.

"It's hard to say what he's thinking. If I could read Mr Putin's mind I would be a rich man," a European Commission spokesman said. "We understand he's not interested in a cartel, which would not be good for anybody. If you create a cartel, you could put at risk the security of demand."

The EU official said "lack of transparency" on Russian gas strategy is a bigger headache for the EU than any talks with Algeria, echoing complaints by Germany, Poland and the IEA about the lack of information surrounding Russia's oil and gas dispute with Belarus in January.

The European Commission believes any gas OPEC would be fundamentally different from the existing oil cartel, with suppliers potentially able to strike deals on when to start production on new gas fields in the long-term, but unable to manipulate the day-to-day flow of gas.

The vast majority of EU gas imports are delivered by fixed pipelines on a bilateral basis, unlike the more flexible oil tankers; gas is more expensive than oil to store and is usually delivered immediately or burned; new coal and nuclear power plants could replace gas if needed in the medium-term.

But on top of all this, the gas suppliers' gang is a much more disparate group than the Middle East-dominated OPEC: Algeria has little common history with Russia; Iran currently exports almost no gas to anybody and Qatar is doing very well for itself shipping liquid gas to the US.

"On the supply side, you would have to have a group of very good friends that trust each other implicitly," IEA gas expert Daniel Simmons said, in reference to a scenario where Algeria's Sonatrach does a deal with Gazprom not to develop a new Algerian field in lieu of rents from a Russian field.

New pipeline to bypass tricky Belarus and Ukraine

Mr Putin's TV address also outlined plans to build a new gas pipeline - Blue Stream-2 - under the Black Sea to Turkey and then Hungary, Austria and Italy, in a bid to build direct gas links to Europe that bypass tricky transit partners such as Belarus and Ukraine.

But he warned Bulgaria and Greece that they need to quickly resolve a dispute on which firms should own a 49 percent stake in a new oil pipeline via Burgas and Alexandroupolis or "lose an opportunity to become transit countries of hydrocarbons from Russia and the Caspian Sea regions to Europe."

The Russian leader made clear he is building new pipelines to the Far East to diversify his options at the same time the EU is planning to diversify its supply routes. "We are not worried about it [EU diversification] because we are in turn diversifying ways of piping energy to end customers in various markets," Mr Putin said.

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