Gas Exporters Duck Output Quota Question

The 22nd ministerial online meeting of the Gas Exporting Countries Forum (GECF) ended November 12 with no public plan to co-ordinate gas output cuts in the Opec fashion, but with plenty of statements by its members that the market needed balancing and the risks and rewards shared more evenly.

GECF has 11 members who have so far met to share knowledge and ideas but have not taken co-ordinated action to prop up prices. But some officials did meet online in early November with members of Opec to exchange views and the meeting was said to have been very successful.

The gas market, like the oil market, has not been so oversupplied before and the move towards shorter-term contracts that customers have asked for creates an opportunity for more flexibility upstream that Opec members already enjoy. One of the resolutions following the meeting was to adapt contracts to future market needs. That suggests shorter terms and hub pricing, which would make output cuts possible. 

Present contracts are linked to oil prices and they penalise buyer and seller for not taking or delivering regular quantities each year for decades. But buyers as well as government organisations including the European Commission and the Japanese industry ministry have been calling for hub pricing and no destination clauses, meaning greater competition. This implies a financial loss for producers who might seek to limit output to raise prices, although this would be painful for some, and compliance might be low, as it has been with Opec cuts.

Several energy ministers' opening remarks hinted heavily at the need to balance markets better in the face of the sharp drop in demand, and to share more fairly the profits from their own countries' resources using language similar to Opec ministers. Russia's newly appointed minister Nikolai Shulginov, for example, said it was important to make the gas market more efficient and to deepen co-operation between GECF members. He said he hoped this message would be conveyed to the next meeting of GECF ministers. That will take place in Doha, Qatar,  next November.

The Algerian chair, Abdelmadjid Attar, did not commit to that but he had said that there was a lot of work to do regarding deepening co-operation between GECF members to support the market. He had said the day before that it might be time to explore ways to co-ordinate output.

The organisation accounts for 52% of gas exports, with Qatar and Russia the biggest. It expects to welcome more states in the coming years as Mozambique, Senegal and others start exporting, while those already producing will continue to do so, meaning the overall number of gas exporters, including non-GECF members, could go from 21 today to 36 later this decade.

Among the resolutions from the meeting were: greater co-operation between members to make markets more efficient and to lower the cost of production, and to work on storage to satisfy demand at a lower cost. Prices have collapsed this year as demand has fallen, hitting a lot of countries that rely on raw materials for their revenues. Those with the lowest production costs such as Qatar and Russia have suffered least but many plants have seen shut-ins both in the US and elsewhere as even term buyers have been absent or taking the minimum.

The press release after the virtual November 11-12 event acknowledged that GECF members had worked this year "to ensure unrestricted functioning of free and flexible gas markets, as well as uninterrupted supplies to customers, in spite of numerous challenges and decline in revenues." 

Iran minister attacks US sanctions

Veteran Iranian energy minister Bijan Zanganeh used the forum to talk about the "illegal" unilateral sanctions that the US had imposed on Iran and which had cost the country billions of dollars in lost oil export revenues. This money could have been used to save lives during the Covid-19 pandemic, he said. They also forced out investors from the upstream South Pars project, notably French Total.

The sanctions were imposed when the US abandoned the multi-lateral treaty on Iran's nuclear testing, which Donald Trump said gave Iran too much leeway. His predecessor Barack Obama had, with European partners, spent some years negotiating the treaty and his vice president, Joe Biden, is now president-elect. But there is no certainty that he will be able to reopen talks with Iran, which itself will have a new regime in spring next year.