Identifier
Created
Classification
Origin
07MOSCOW1606
2007-04-10 14:14:00
CONFIDENTIAL
Embassy Moscow
Cable title:
RUSSIAN ENERGY: GAS OPEC -- NOT QUITE
how-toVZCZCXRO9837 OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #1606 1001414 ZNY CCCCC ZZH O 101414Z APR 07 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC IMMEDIATE 9097 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1097 RHEHNSC/NSC WASHDC PRIORITY RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 001606
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT AND EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBEN
E.O. 12958: DECL: 04/10/2017
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIAN ENERGY: GAS OPEC -- NOT QUITE
Classified By: Econ M/C Pamela G. Quanrud. Reasons 1.4 (b/d).
C O N F I D E N T I A L MOSCOW 001606
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT AND EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBEN
E.O. 12958: DECL: 04/10/2017
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIAN ENERGY: GAS OPEC -- NOT QUITE
Classified By: Econ M/C Pamela G. Quanrud. Reasons 1.4 (b/d).
1. (U) Very few in Moscow believed that the April 9 Gas
Exporting Countries Forum in Doha would result in a decision
to set up an OPEC-like cartel. In the run-up to the meeting,
Russia's representative Energy Minister Viktor Khristenko
said, "the fact that a cartel agreement on price formation
for gas will not be signed in Doha is clear." However,
President Putin indicated that he thought the idea was
"interesting," doing nothing to dispel rumors that it may
actually happen. Referring to Europe's discussions regarding
becoming less energy-reliant on Russia, Valery Yazev,
concurrently a member of the Duma's energy committee and head
of the Russian Gas Association, has accused European
bureaucrats of "provoking gas producers to take actions in
response."
2. (C) Every contact we spoke with downplayed the idea of the
formation of a cartel -- at least for now. Ron Smith, head
of research at Alfa Bank, said that a cartel would not work
because they cannot "squeeze off the flows to support higher
prices" given the long-term nature of natural gas contracts.
He, and others like Vlad Konovalov, head of the Petroleum
Advisory Forum, Shawn McCormick of TNK-BP, and Ed Verona of
ExxonMobil, agreed that the Doha discussions were probably
more about Russia trying to protect its market share in
Europe than about setting prices. All said that OPEC-like
price-setting will only occur when liquefied natural gas
(LNG) is prevalent enough that there is a true "global
price." Smith said this could happen if LNG reaches 25
percent of the global market but that this could be 20 or
more years out.
Comment
--------------
3. (C) For Russia, the threat of a cartel can be useful. It
may provide leverage for Russia in its Partnership and
Cooperation Agreement negotiations with the EU. Russian
energy policymakers are undoubtedly aware of the market
constraints arguing against the formation of a cartel -- the
prevalence of long-term contracts and regional, rather than
global, pricing structures. Additionally, the fact that gas
prices are tied to oil prices adds a further complication.
Given this, the results of the gathering -- further
discussion about costs and how prices are formed -- is about
all the GOR could have expected.
BURNS
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT AND EKIMOFF
DOC FOR 4231/IEP/EUR/JBROUGHER
NSC FOR KLECHESKI AND MCKIBBEN
E.O. 12958: DECL: 04/10/2017
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIAN ENERGY: GAS OPEC -- NOT QUITE
Classified By: Econ M/C Pamela G. Quanrud. Reasons 1.4 (b/d).
1. (U) Very few in Moscow believed that the April 9 Gas
Exporting Countries Forum in Doha would result in a decision
to set up an OPEC-like cartel. In the run-up to the meeting,
Russia's representative Energy Minister Viktor Khristenko
said, "the fact that a cartel agreement on price formation
for gas will not be signed in Doha is clear." However,
President Putin indicated that he thought the idea was
"interesting," doing nothing to dispel rumors that it may
actually happen. Referring to Europe's discussions regarding
becoming less energy-reliant on Russia, Valery Yazev,
concurrently a member of the Duma's energy committee and head
of the Russian Gas Association, has accused European
bureaucrats of "provoking gas producers to take actions in
response."
2. (C) Every contact we spoke with downplayed the idea of the
formation of a cartel -- at least for now. Ron Smith, head
of research at Alfa Bank, said that a cartel would not work
because they cannot "squeeze off the flows to support higher
prices" given the long-term nature of natural gas contracts.
He, and others like Vlad Konovalov, head of the Petroleum
Advisory Forum, Shawn McCormick of TNK-BP, and Ed Verona of
ExxonMobil, agreed that the Doha discussions were probably
more about Russia trying to protect its market share in
Europe than about setting prices. All said that OPEC-like
price-setting will only occur when liquefied natural gas
(LNG) is prevalent enough that there is a true "global
price." Smith said this could happen if LNG reaches 25
percent of the global market but that this could be 20 or
more years out.
Comment
--------------
3. (C) For Russia, the threat of a cartel can be useful. It
may provide leverage for Russia in its Partnership and
Cooperation Agreement negotiations with the EU. Russian
energy policymakers are undoubtedly aware of the market
constraints arguing against the formation of a cartel -- the
prevalence of long-term contracts and regional, rather than
global, pricing structures. Additionally, the fact that gas
prices are tied to oil prices adds a further complication.
Given this, the results of the gathering -- further
discussion about costs and how prices are formed -- is about
all the GOR could have expected.
BURNS