If it looks like a cartel and acts like a <nobr>cartel . . .</nobr>

Kai Ryssdal Apr 9, 2007
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If it looks like a cartel and acts like a <nobr>cartel . . .</nobr>

Kai Ryssdal Apr 9, 2007
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KAI RYSSDAL: OPEC might soon find itself with a little competition. Won’t have such a catchy name though. Try GPCF on for size. Gas Producing Countries Forum.

The gas in question is natural, not the stuff you put in your car. The world’s largest natural gas exporters are meeting today in the Persian Gulf state of Qatar. They’ve got plans afoot to work together to set prices. Which sounds a lot like a carte — although Qatar’s energy minister said today he hates that word.

Vijay Vaitheeswaran’s a correspondent for the Economist. Vijay, good to have you with us.

VIJAY VAITHEESWARAN: Great to be here.

RYSSDAL: Is there something that you would say there is about the natural gas market — the way it works, the way the product is brought to market — that makes a cartel either easier or more difficult than in the oil industry?

VAITHEESWARAN: Sure. I mean, the reason people are interested in this idea about a gas cartel is that there are a few countries — Russia, Qatar, in particular Iran, most notably and vociferously — that want to gain some power over the marketplace. But the problem is, from their perspective, gas is not oil. Of course, everyone would have heard of the OPEC cartel, the oil cartel. I’m very skeptical when it comes to talk about creating a gas cartel for the following reasons: there’s a lot more gas left in the world than there is oil. And not only that, it’s much more dispersed among many more countries. So that makes it harder for any two or three countries to try to create a cartel, to try to limit production. So it’s just a much harder market to create a cartel in natural gases.

RYSSDAL: What about the physical manifestation of the market? Is it different than oil in how the product gets to market?

VAITHEESWARAN: That’s another aspect of why I think cartel talk is a little wishful thinking on the part of Russia, perhaps, and Iran. Most gas is still delivered by pipeline. Very long pipeline sometimes, such as those from Russia to western Europe. And whereas most oil — indeed, almost all of the internationally traded oil – is delivered on tankers. And what . . . why does that matter? And that’s because a ship at sea can be redirected very easily, whereas gas that’s put into a pipeline — like a Russian gas pipeline going towards western Europe — well, if you decide, for example, to do an embargo on your customer or something like that, you can’t redirect that gas anywhere else. It’s not very easy to do because that gas is piped. So there’s a fundamental structural issue in the marketplace that reduces the power of producers, in my judgement. And so I think that’s another reason why efforts by gas producers to exercise their producer power, whether through cartels or embargos, in my judgement will always fail, over the long run.

RYSSDAL: All right. So what we have here is a product, a commodity that does not lend itself to being . . . “cartelized,” if you will, if I could create a word. And countries that are, or at least seem to be of mixed minds, whether or not they want to work together to make their product power stick in the marketplace. Is this, then, just a conversation about political power based on the high price of energy?

VAITHEESWARAN: Absolutely. When you see prices go up in commodity markets, particularly for oil in gas, you see a lot of hubris in producing countries. You see, you know, what economists have known for a long time as the “oil curse,” or natural resources curse. That you see if you look at Venezuela with Hugo Chavez, Russia with Vladimir Putin. When countries — and particularly nationalistic, very strong leaders — are . . . have access to lots and lots of easy money, that’s . . . really what oil and gas is — you find that they suddenly become very forceful with their foreign policies. They try to use energy pricing in a way that enhances national security. The problem is energy prices are cyclical: what comes up often comes down, what comes down may go up again. But the promises that are made by Chavez, for example in Venezuela or Vladimir Putin, they’re making a lot of promises in terms of government spending. They’re making a lot of flexing of muscles, I should say, in terms of foreign policy. Well if the oil and gas prices trend down dramatically in coming years, they might actually find that those promises come to nothing. Or worse, that there’s a great deal of disillusionment in their countries.

RYSSDAL: Vijay Vaitheeswaran is a correspondent for The Economist magazine. His book on the energy industry is called “Power to the People.” Vijay, thanks a lot for your time.

VAITHEESWARAN: It’s a pleasure.

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