Analysis Brief

PrintPrint EmailEmail ShareShare CiteCite
Style:MLAAPAChicagoClose

loading...

A Cartel by Any Other Name

Prepared by: Lee Hudson Teslik
Updated: April 11, 2007

Share

In a move that raised more questions than it answered, the world’s leading natural gas producers agreed April 9 to form a committee to explore collaborative efforts (FT) at price controls. Officials from the Gas Exporting Countries Forum (GECF) member states denied any intent to form a “cartel,” but the distinction is semantic—under any label, the new committee’s formation demonstrates the GECF would like to be able to collectively influence pricing, which indeed is the definition of a cartel. OPEC, the Organization of the Petroleum Exporting Countries, provides the most obvious parallel. The oil exporters’ group historically has kept prices relatively stable, but on occasion has used its levers on oil pricing as a political weapon (the 1973 oil crisis is an example).

The announcement of the new committee’s formation stoked fears about the political power a body manipulating natural gas prices would wield. The United States produces the vast majority of its natural gas domestically, but European nations depend heavily on gas imports and raised pointed concerns (WSJ). Political wariness over the world's top gas producers—led by Russia, Iran, and Qatar—collaboratively guiding prices puts importers even more on edge (Australian). “Russia could exert a very significant monopolistic power over Western Europe, and it would take Europe years to find alternative supplies of natural gas,” says Philip Verleger, an energy policy expert, in an interview about the GECF meetings. Verleger says this economic influence could translate to political clout as well: “It’s going to be very important for the Europeans to avoid being squeezed by a monopolist or a cartel.”

Leading up to its announcement of the new committee, the GECF’s leading powers worked to quell these kinds of fears, insisting the group would not become a “cartel” and reassuring consumers that business would continue as usual (Reuters Canada). Yet even regardless of GECF’s intentions, experts say fears of a natural gas cartel might be unrealistic. As this Associated Press news analysis explains, markets set natural gas and oil prices in very different ways, and it would be difficult for natural gas exporters to manipulate prices the way OPEC does, even if leading producers were so inclined. Oil is an exchange-traded commodity, so shifts in supply (which producers, of course, can restrict) have an instant effect on pricing. But natural gas is generally sold through restrictive, long-term contracts that lock in prices for up to twenty-five years. This primer (PDF) from the American Petroleum Institute looks at some of the intricacies of natural gas pricing.

Other factors, too, could limit GECF efforts to manipulate pricing. The Energy Business Review, a journal focusing on industry news, lists several potential obstacles. These include the wildly divergent political agendas of member countries, the generally local nature of natural gas markets (though the development of LNG, or liquefied natural gas, is changing this), and the threat of an international crackdown on cartel laws.

Still, even if efforts to control natural gas pricing don’t meet with much success, the political clout of major producers could still increase in line with the expansion of the natural gas market itself. Natural gas is the world’s cleanest fossil fuel, and its popularity has steadily increased in recent years, and is expected to nearly double between 2003 and 2030 according to projections from the U.S. Energy Information Administration. This Backgrounder looks at natural gas usage in the United States and how it might fit into America’s push for energy independence.

More on This Topic