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Russia wants to protect long term gas deals

Gas producers should work together to limit the impact of spot sales on their long-term deals, top gas exporter Russia said on Sunday.

Russia wants to protect long term gas deals

Gas producers should work together to limit the impact of spot sales on their long-term deals, top gas exporter Russia said on Sunday. A global gas supply glut has hit prices in spot markets, so consumers have looked to reduce what they purchase on long-term contracts to instead buy as much as they can in the open market. Gas powers holding 70 percent of the world's reserves were set to meet on Monday to discuss ways to combat low prices. Russian Energy Minister Sergei Shmatko stopped short of calling for other members of the Gas Exporting Countries Forum (GECF) to reduce spot sales, a plan that host country Algeria aims to put before the forum's 11 members on Monday.

"The spot market is also important, but it should not start to compete with long-term contracts in the form that is happening today," Russian Energy Minister Sergei Shmatko told reporters in Algeria's Mediterranean resort of Oran, where the GECF is meeting. "We supply within the framework of long term contracts, and we believe that other suppliers should or could express their approach to that and join with us." The GECF has never before coordinated supply policy, but analysts say the pain from low prices may force them to consider action. New supplies from unconventional sources in the United States combined with a fall in demand due to the global economic downturn have hit gas producers' export income.

The GECF's statement after the meeting would register ministers' concern about the gas market and the need to draft a consolidated approach, Shmatko said. He gave no more detail on what that approach would be. Ministers from Russia, Algeria and Qatar met informally on Sunday as they prepared for the GECF gathering. Asked after the meeting if the three had come to any agreement, Shmatko said "Not yet." Algeria's Energy Minister Chakib Khelil said on Sunday that he had yet to present to other ministers a study his country had commissioned into the global gas market. The study outlines the case for the GECF to cut spot supplies to the market. Gas producers needed to do something soon about low prices, he said. "There is, in the short term, the problem of oversupply in the market that we have to deal with and that's the discussion we're going to have tomorrow," Khelil said.

The group needed to find an appropriate price for gas for buyers and sellers of gas, Khelil said. Consumers could face a supply crunch in the future if the price is so low it discourages producers from investing in new capacity, he said. "If you don't have a just price for both producers and consumers, you are not going to ensure the appropriate investments in the right time so that they will meet demand in the future," Khelil said. Qatar's energy minister Abdullah al-Attiyah on Sunday said gas prices should be more closely connected to oil prices, which hit an 18-month high earlier in April. "Current prices aren't fair. They should be linked to oil prices," he told reporters.

Most of Europe's gas is delivered on long-term contracts through pipelines. Globally, an increasing volume is being shipped as liquefied natural gas (LNG). LNG suppliers have more flexibility to target the best-paying spot markets for delivery of their cargoes of gas chilled to liquid form for exports on specially designed ships. Qatar is the world's largest LNG exporter, and is also a member of the GECF. It sends cargoes to Europe, Asia and the United States. While the three countries are fellow members of the GECF, they also compete in Europe's market. Qatar has supplied some of the spot cargoes that have put pressure on prices in Europe.



Author: Christian Lowe


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