Russia Reportedly Planning to Present Draft Charter to GECF Next Week

A Draft Charter

In the run-up to a meeting of the Gas Exporting Countries Forum (GECF) to be held in Moscow (Russia) in June, the Russian Industry and Energy Ministry is reportedly ready to present a draft charter to a high-level GEFC committee session in Tehran (Iran) on 28 April. Kommersant reported today that the Ministry, together with Russian gas giant Gazprom, prepared a draft document at the end of last year and has been passing it around ministries in order to finalise the language. The Russian business daily reported that a draft charter of the GECF, a loose grouping of gas-producing countries with no formal membership that has met periodically since 2001, was sent to the appropriate agencies of the 15 other "member" states (see table) last week. Deputy Minister of Industry and Energy Anatoly Yanovsky is then expected to present the draft charter at a high-level GECF committee session next week, according to Kommersant.

The idea of turning the GECF into a "gas OPEC" has instilled fear in the hearts of Western governments and gas-importing countries, and Russia and Iran, in particular, have been pushing for the idea of a more formal organisation for the GECF since last year. However, a high-profile GECF meeting in Doha (Qatar) last year saw participating countries refrain from declaring themselves a cartel (see World: 10 April 2007: Gas Exporters Stop Short of Declaring a Cartel). Still, moves by gas exporters to increase their co-operation and co-ordinate policies have justifiably triggered concern among gas importers about potential attempts to withhold supplies and/or manipulate prices. Although there are reasons to believe that the formation of a "gas OPEC" will not be successful—at least initially—in any attempt to operate in the manner of a cartel, the idea that gas exporters would seek to mimic OPEC is still cause for alarm among gas-importing states and major consumers.

A Softer Approach?

Only three months ago, Gazprom spokesman Sergei Kupriyanov sought to alleviate renewed speculation that major gas producers plan to form an OPEC-like gas cartel at their June meeting in Moscow, saying that "it would be a different structure to OPEC with completely different goals. Kupriyanov told Reuters in January that members of the GECF would aim to "coordinate investment strategies and make sure there is a balance between production capacities and market needs in the long-term", different to OPEC's goal of setting production volumes to influence prices. On the face of it, Russia's draft charter for turning the GECF into a more formal organisation would seem to contradict Kuprivanov's earlier comments, but in reality, it appears that the Russian draft charter is actually in response to a proposal from Iran that would essentially copy the OPEC charter.

A spokesperson for Gazprom confirmed that week that a draft charter for the GECF is being discussed and is expected to be considered at the next ministerial session of the GECF. Apparently in response to the cartel-like organisation that Iran wants the GECF to become, the Russian draft charter envisions the organisation becoming an international platform for the development of a formula for the price of gas and discussion of routes for new pipelines. Kommersant reported that the draft Russian charter proposal's language calls for "creating an international platform for development of a universal formula for the price of gas, the use of spot deliveries with the goal compensating for shortages of volume in the course of fulfilling long-term contracts, determination of the expediency of the construction of new gas pipelines taking account of the forecast risk”.

Taking into account the obvious negative connotation of the term "gas OPEC" among consuming countries, Russia is apparently trying to play down the analogy between GECF and OPEC, with a government source telling Kommersant, "We do not need a cartel agreement." Russian diplomats and ministry officials have criticised the draft Iranian charter proposal, arguing that it would have widespread negative political consequences; hence, the softer Russian proposal. Russia is also beginning to more openly promote the idea of a supplement (or perhaps alternative) to the GECF, the International Alliance of Nongovernmental Natural Gas Organizations (IANNGO), which its organisers say would create conditions "for the just distribution of income from the export of gas between producers and countries that transport gas, and form common investment sources for the development of the gas industry”. Kommersant reported that the main difference between IANNGO and GECF is that IANNGO would unite “nongovernmental gas organizations and leading gas companies of the countries producing and transporting natural gas”, while the GECF would be solely an intergovernmental structure.

Outlook and Implications

Russian Natural Gas Society vice-president Oleg Zhilin told Kommersant that Russia plans to present the IANNGO project to the GECF meeting in Moscow in June as a "platform for the settlement of problems among the gas business, consumers and the bodies of authority". Zhilin said that there is strong interest in IANNGO among GECF members, which could actually complicate moves to make GECF more formal if IANNGO emerges with more support. Indeed, with the Iranians pushing for a more OPEC-like organisation, the alternative Russian draft charter for GECF could cause a split among GECF attendees and thus prove an obstacle to coming to an agreement on making the organisation more formal.

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