Russia Weighs Energy Cartels

By Sergei Blagov | October 23, 2008 | 5:31 AM EDT

Moscow ( – Following an agreement to work with Iran and Qatar on setting up a natural gas cartel-like grouping, Russia also has moved to strengthen ties with OPEC while exploring the idea of an oil reserve to influence pricing.
As a major oil producer, Russia is interested in sustaining stable and predictable prices, President Dmitry Medvedev told the visiting OPEC secretary-general, Abdullah al-Badri, on Wednesday.
We have good relations with OPEC member states and intend to deepen them, he said in televised remarks. Russia is not a member of OPEC.
Both sides denied that oil production cuts were on the agenda on their talks. An OPEC meeting planned for Friday in Vienna is widely expected to agree on cutting production in a bid to stop falling prices. Recession fears have seen prices drop since record highs in July.
Energy Minister Sergei Shmatko said ahead of the talks with al-Badri that Russia would not discuss production cuts. He also indicated that Moscow may create an oil reserve to influence global prices.
While saying he would not ask the Russians to cut oil output, al-Badri did warn of a significant oversupply of crude in 2009 if major producers fail to cut production. He voiced support for Russia’s oil reserve plans.
Earlier this week OPEC president Chakib Khelil said major oil producers, including Russia, Norway and Mexico – all non-OPEC members – should support output cuts to prop up oil prices.
Russian oil companies are already limiting exports. In the third quarter, Russia’s crude exports were estimated to drop by some nine percent, while leading oil company Lukoil reportedly cut overseas supplies by 23 percent.
The de facto export cuts were due to a number of reasons, including high oil export duties and high domestic petrochemical prices.
Although then President – now prime minister – Vladimir Putin said in 2004 that Russia would likely not join OPEC, Russia’s interest in closer ties with OPEC have increased, along with recent price drops.
Last month deputy Prime Minister Igor Sechin attended an OPEC session and urged greater cooperation between the cartel and Russia.
This week’s top-level contacts with OPEC came immediately after Moscow’s decision to move ahead with a powerful natural gas grouping. Meeting in Tehran Tuesday, officials from Russia, Iran and Qatar agreed to create a “gas troika,” to set up a supreme technical committee, and to meet 3-4 times a year.
Russia holds some 25 percent of the world’s proven natural gas reserves, Iran accounts for about 16 percent and Qatar for more than 14 percent.
Promoted by Iran, the idea of a “gas OPEC” has surfaced repeatedly in recent years, although the Kremlin in the past seemed reluctant to formally endorse it, apparently fearing a negative response from its major European customers.
Last April, Putin visited Libya and discussed the idea but refrained from making any firm commitments. In July, Medvedev acknowledged that the creation of an OPEC-like gas cartel remained on the agenda.
Foreign Minister Sergei Lavrov on Wednesday defended the “gas troika,”  calling it a “legitimate and absolutely healthy phenomenon.”
Russian will next month host a meeting of the Gas Exporting Countries Forum (GECF), a loose grouping involving the three troika partners as well as Algeria, Egypt, Indonesia, Libya, Malaysia, Nigeria, Trinidad and Tobago, the UAE and Venezuela.
Alexey Miller, head of the Russian gas monopoly Gazprom, said this week the forum should be transformed into a permanent organization.
He said Russia, Iran and Qatar have agreed that despite the recent volatility of oil prices, “the era of cheap hydrocarbons is over.”