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ALGERIA - Algeria & Russia Behind Gas Cartel?

EU Energy Commissioner Andris Piebalgs on Jan. 24 warned Russia was trying to build a gas cartel by linking up with Algeria. He said if Russia and Algeria agreed to co-operate in production and distribution of gas to Europe, "they could create a kind of cartel". Russia provides 25% of European gas supplies and Algeria 10%. Norway and other European producers provide the rest. Piebalgs said such a concentration of resources could hinder competition when the EU is trying to break up some of the biggest European energy companies by separating production, transmission and distribution to give consumers greater choice.

"Our worries are the development of the contacts between Russia and Algeria", said Piebalgs, who since taking charge of the European energy sector in 2004 has called for liberalisation of the market and wider diversification to avoid reliance on a single supplier.

Piebalgs said Gazprom had been holding talks with the Algerian authorities and with Sonatrach, adding: "We, Europe, are their biggest customers. We want to have a fair price. This is not only about commercial interests. It is about transparency, too".

Worries that Gazprom was trying to expand access to the European market through Algeria were heightened, after a Jan. 19-22 visit to Algeria by Alexander Medvedev, deputy chairman of Gazprom and head of its export arm GazExport, and Russian Industry and Energy Minister Viktor Khristenko. They were accompanied by executives from the oil companies Rosneft and Lukoil.

Gazprom said in a statement that both sides were intending to jointly explore the oil and gas sector, and the distribution of gas in Algeria, Russia and third countries. They discussed a production sharing agreement.

According to the Russian news agency Interfax, Gazprom is seeking support from Sonatrach in the joint marketing of gas to Europe, and in the setting up a forum of gas-exporting countries - which EU officials fear could develop into a cartel.

In return for co-operation, Russia is offering Sonatrach participation in the construction of a liquefied natural gas (LNG) terminal in St. Petersburg. Pielbalgs said: "The context of these meetings between Russia and Algeria makes us nervous".

After talks in Algiers with Minister Khristenko on Jan. 20, Algeria's Energy and Mines Minister Chakib Khelil said: "It is too early and too complicated to talk about the creation of a 'gas OPEC', because the oil market is different from the gas market". Russian officials have repeatedly denied they have any plan to form a group, saying it would be undesirable and impractical, while Gazprom says its long-term contracts would make such a suggestion implausible.

Energy analysts said attempts by Russia to create what could be a gas cartel similar to OPEC should be met with maximum resistance by EU members. Claudia Kemfert, an energy expert at the German Institute for Economic Research, was on Jan. 24 quoted as saying: "This would be extremely dangerous for Europe. Europe must quickly react by diversifying its energy resources. Apart from making more use of renewable energy, the Europeans should focus more on buying liquefied natural gas from other countries, particularly Qatar".

Other analysts said two powerful non-European companies working together could end up controlling nearly 40% of European gas needs.

Christian Egenhofer, an energy expert at the Centre for European Policy Studies in Brussels, said: "That could have a price impact. At the moment, it is hard to say what the real reasons are for growing co-operation between Algeria and Russia. This could be a serious attempt by Gazprom to build up a global cartel and therefore increase its leverage, or else President Putin is raising the stakes in order to tell the European Union that Russia has leverage too".

The EU has been pressing Russia to ratify the bloc's energy charter, which would allow foreign firms access to Russian pipelines to transport gas across Russia to its markets in Europe. Putin has repeatedly said he would not ratify the charter. German Chancellor Angela Merkel, who took over the EU and G-8 presidencies in early 2007, recently said she wanted to include the energy charter in a new EU-Russia partnership and co-operation agreement.

As the European gas market opens to more competition, Gazprom has moved quickly. In recent months, it has signed agreements with French, Austrian, Italian and German energy companies which will allow the Russian giant to sell its own gas directly to European customers. In return, Gazprom will deliver more gas under long-term contracts to the energy firms in these countries.

But as Gazprom strengthens its position in Europe, Piebalgs said he saw no signs that Russia was willing to reciprocate, adding: "We see Gazprom's investment in Europe but I cannot see any new major European energy investments in Russia. In terms of Europe wanting a relationship with Russia, reciprocity is definitely the key".

The Kremlin has maintained a firm grip on production and distribution in Russia by denying foreign companies, and even small domestic gas producers, access to its network of pipelines in order to transport and sell its gas outside Russia.
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Publication:APS Review Oil Market Trends
Date:Jan 29, 2007
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