Forum of Gas Exporting Countries

"The time of cheap energy resources, and cheap gas is surely coming to an end." Vladimir V. Putin

This past Tuesday in Moscow and largely at the behest of Russian Prime Minister Vladimir Putin, fourteen large natural gas-producing countries met to establish an organization that will study ways to set global natural gas prices by limiting production, much as the Organization of Petroleum Exporting Countries does for crude oil. For now, the organization is to be called the Forum of Gas Exporting Countries (FGEC. The forum members include: Algeria, Bolivia, Brunei, Venezuela, Egypt, Indonesia, Iran, Qatar, Libya, Malaysia, Nigeria, the United Arab Emirates, Russia, Trinidad and Tobago and, as observers, Equatorial Guinea and Norway.

Russia, the world's largest producer, accounts for 21.6% of global natural gas production. Other top ten global producers attending the meeting include Iran, Norway (as an observer) and Algeria. However, only eight of the 14 countries are world top 20 producers. As an aside, it's noteworthy that none of the large coming on stream Central Asian producers attended the meeting.























Top 20 Global Natural Gas Producers
CountryNatural Gas Production (billion cu m)Percent of World Production
Russia652.221.59%
United States549.918.20%
Canada197.96.19%
Iran187.03.70%
Norway92.63.07%
Algeria87.72.90%
Netherlands76.32.53%
Saudi Arabia76.02.52%
United Kingdom72.32.39%
China69.32.29%
Turkmenistan68.92.28%
Uzbekistan65.22.16%
Malaysia65.22.14%
Qatar59.81.98%
Indonesia56.01.85%
Mexico55.91.85%
United Arab Emirates48.81.62%
Egypt47.51.57%
Argentina44.81.48%
Australia43.61.44%
Source: CIA Factbook 2008

All told, the 14 members of the Forum of Gas Exporting Countries accounts for 42.1% of total world natural gas production. That's comparable to OPEC which produces about 40% of the world's oil (though OPEC's total share of world production is expected to climb to 52% by 2020). It's rather striking that in this nascent cartel, Russia accounts for half of its production.




















Forum of Gas Exporting Countries
CountryNatural Gas Prod. (bil. cu m)Percent of World ProductionWorld Rank
Russia652.221.59%1
Iran187.03.70%4
Norway (observer)92.63.07%5
Algeria87.72.90%6
Malaysia65.22.14%13
Qatar59.81.98%14
Indonesia56.01.85%15
United Arab Emirates48.81.62%17
Egypt47.51.57%18
Trinidad & Tobago39.01.29%21
Nigeria34.11.13%22
Venezuela26.50.88%26
Libya14.80.49%32
Bolivia14.70.49%33
Brunei13.80.46%34
Eq. Guinea (observer)1.30.04%59
FGEC Total1,271.342.08%--- ---
Source: CIA Factbook 2008 & By The Fault

Impact
The Forum of Gas Exporting Countries is likely more to impact the European Community (EU) more than any other region. EU members use more natural gas as a percentage of overall energy use (around 24%) than either the United States (22%) or Japan (14%). Most of Europe's natural gas consumption goes toward industrial uses as well as for residential and commercial heating. The heavy use of natural gas by both industrial and individual consumers means that any price increase in imports will impact European industry and consumers directly and immediately.

Russian exports account for about a quarter of European natural gas imports.  Norway supplies 15% of Europe's needs and Algeria another 11%. Libya, Nigeria, Egypt and Qatar combined account for another 9% of European natural gas imports. Local European production is centered in the Netherlands largely off-shore in the North Sea but Dutch production is expected to decline significantly after 2020. The other large European producer is the United Kingdom which has already entered a decline in production. Britain was a net exporter as recently as 2004 but it now imports 40% of its natural gas requirements.

A number of countries, primarily the Baltics and other former Warsaw pact countries, are heavily dependent on imports of Russian natural gas. Latvia and Estonia are likely the most exposed. The two small Baltic republics rely on natural gas over a third of their energy use, all of which comes from Russia. Among the larger EU countries, Germany is likely the most affected. Germany relies on natural gas for about 25% of its energy use with 43% of its imports coming from Russia.

















European Dependence on Russian Natural Gas
CountryEnergy Use From Natural GasPct Imported From Russia
Estonia30%+100%
Latvia30%+100%
Slovakia30%+94%
Lithuania30%+80%
Hungary30%+70%
Turkey30%+66%
Ukraine30%+35%
Italy30%+31%
Germany25%+43%
Finland15%+100%
Bulgaria15%+99%
Greece15%+70%
Poland15%+46%
France15%+18%
Source: Stratfor Global Intelligence

A Progressive Foreign Policy Approach to US-Russian Relations
The question that should be on American and European policymakers is that given Russia's willingness to use energy as a weapon, how does this new cartel change the energy equation in Europe and what can and should we do about it?

Well, the first thing is to realize the limits of the Russian attempt to use energy as a weapon. The nature of natural gas development and delivery limits its use as a weapon. As Dr. Andreas Goldthau of George Washington University notes:

First, since exploration of gas fields and pipeline construction are extremely expensive and time-consuming, producers and consumers engage in long-term contracts that usually cover 20 years or more and entail destination clauses prohibiting secondary trading. Based on these take-or-pay contracts, the producer is able to invest in a multibillion-dollar project, as there is a constant and reliable return on investment. The consumer enjoys a guaranteed supply for several decades, thus reducing uncertainty and costs. Second, gas is a regional play, as it is almost exclusively transported via pipelines. 3 Hence, if either the producer or the consumer wants to opt for exit and start dealing with an alternative contractual partner, he has to make a high additional investment, i.e., build a new pipeline. Given extremely high upfront costs, it becomes very costly for either involved party to leave an established bilateral contractual gas relation. A quick look at the dense pipeline grid connecting Europe and Russia reveals that neither side can be interested in dumping all the money each have invested; nor do they have a real choice.

Russia does not have the option to sell its gas to, say, China, since the existing infrastructure is insufficient, at least in the short run. Nor can the Europeans simply turn away from their Russian provider. In other words, both sides are mutually dependent, from the very moment they have committed to a contract.

Still it's clear that dealing with an ever more assertive and increasingly less democratic Russia will present challenges to the incoming Obama administration. It's less clear how we can respond to these challenges. Engaging Russia isn't likely to always yield satisfactory responses but confronting Russia is likely to yield even less favorable responses. I am not sure the wisdom of missile shields of dubious merit to begin with in Poland and Czech Republic.  Encouraging a liberal democratic movement within Russia to take shape is, of course, the answer but that road won't be easy.

In a recent article in Europe's World, Boris Kapustin of the Russian Academy of Sciences argues that Russian liberalism is not just in crisis, politically speaking it has ceased to exist. To revive it Mr. Kapustin advises taking a page from Vaclav Havel's book of 20 years ago that headed the Velvet Revolution in Czechoslovakia.

If liberalism is to be reborn in Russia, one must understand the political causes of its demise. Liberalism failed as an ideology in Russia in the wake of communism's collapse. Now Russian liberals must free themselves from the burden of the Boris Yeltsin legacy - its unabashed neoliberalism - and confront the type of capitalism expressed by the present Russian regime's "authoritarian capitalism."

Once again it seems that pushing that ideology of free markets before everything else has failed us.

More on Tuesday's meeting in Moscow from the New York Times. More on the world's natural gas production, reserves and outlook from Energy Information Administration.

Tags: Energy Geo-politics, Forum of Gas Exporting Countries, US-Russian Relations, Vladimir Putin, World Natural Gas Production (all tags)

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