Yves here. It looks like no one in Washington worked out than sanctioning big energy/commodities players like Russia and Iran would push them together and increase their market power. The case study here is gas. Note at least one EU official has warned that the continent’s energy crisis could last ten years.
This article describes how Russia and Iran are on their way to creating a Gas OPEC. If they can enlist Qatar, who they’ve previously assisted, the new bloc would control 60% of world gas reserves. Iran ally Lebanon, which has claims on the Mediterranean field offshore Lebanon and Israel, would presumably join.
By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice
- Russia and Iran are building the foundation for a potential natural gas cartel.
- The Russia-Iran alliance aims to control as much of the two key elements in the global supply matrix as possible.
- “Gas is widely seen as the optimal product in the transition from fossil fuels to renewable energy, so controlling as much of the global flow of that will be the key to energy-based power over the next ten to twenty years”, according to a senior source who works closely with Iran’s Petroleum Ministry.
The US$40 billion memorandum of understanding (MoU) signed last month between Gazprom and the National Iranian Oil Company (NIOC) is a stepping stone to enabling Russia and Iran to implement their long-held plan to be the core participants in a global cartel for gas suppliers in the same mold as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers. With a foundation in the current Gulf Exporting Countries Forum (GECF), this ‘Gas OPEC’ would allow for the coordination of an extraordinary proportion of the world’s gas reserves and control over gas prices in the coming years. Occupying the number one and number two positions in the world’s largest gas reserves table, respectively – Russia with just under 48 trillion cubic meters (tcm) and Iran with nearly 34 tcm – the two countries are in an ideal position to do this.
The Russia-Iran alliance, as evidenced in the most recent multi-faceted MoU between Gazprom and the NIOC, wants to control as much of the two key elements in the global supply matrix – gas supplied over land via pipelines and gas supplied via ships in liquefied natural gas (LNG) – as possible.
According to a statement last week from Hamid Hosseini, chairman of Iran’s Oil, Gas, and Petrochemical Products Exporters’ Union, in Tehran, after the Gazprom-NIOC MoU had been signed: “Now the Russians have come to the conclusion that the consumption of gas in the world will increase and the tendency towards consumption of LNG has increased and they alone are not able to meet the world’s demand, so there is no room left for gas competition [between Russia and Iran].” He added: “The winner of the Russia-Ukraine war is the United States, and it will capture the European market, so if Iran and Russia can reduce the influence of the United States in the oil, gas and product markets by working together, it will benefit both countries.”
The Gazprom-NIOC MoU, as initially analyzed by OilPrice.com, contains four key elements that are geared towards the build-out of a ‘Gas OPEC’.
One element is that the Russian state-backed gas giant has pledged its full assistance to the NIOC in the US$10 billion development of the Kish and North Pars gas fields with a view to the two fields producing more than 10 million cubic meters of gas per day.
A second element is that Gazprom will also fully assist with a US$15 billion project to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar.
A third element is that Gazprom will provide full assistance in the completion of various liquefied natural gas (LNG) projects and the construction of gas export pipelines.
The fourth element is that Russia will examine all opportunities to encourage other major gas powers in the Middle East to join in the gradual roll-out of the ‘Gas OPEC’ cartel, according to a senior source who works closely with Iran’s Petroleum Ministry. “Gas is widely seen as the optimal product in the transition from fossil fuels to renewable energy, so controlling as much of the global flow of that will be the key to energy-based power over the next ten to twenty years, as has already been seen on a smaller scale in Russia’s hold over Europe through its gas supplies,” he added.
From a top-down perspective, the Russia-Iran alliance is focused on drawing in the overt or covert support for the Gas OPEC construct from other major producers in the Middle East regarded as undecided in committing to the Russia-Iran-China axis or to the U.S.-Europe-Japan axis. Qatar (with the world’s third-largest gas reserves of just under 24 tcm, and the top LNG supplier) has long been seen by Russia and Iran as a prime candidate for such a gas cartel, given that it shares the principal source of its ongoing prosperity with Iran in the shape of the 9,700 square kilometres (sq.km) reservoir that holds at least a combined 51 tcm of gas and 50 billion barrels of natural condensates. Iran has exclusive rights over 3,700 sq.km of this reservoir in its celebrated South Pars field (containing around 14 tcm of gas), with Qatar’s North Field comprising the remaining 6,000 sq.km (and 37 tcm of gas).
A new cooperation accord was reached between Tehran and Doha in 2017 on the shared reservoir and beyond, as analyzed in depth in my latest book on the global oil markets. Since then, Qatar has overtly tried to avoid alienating either of the major two geopolitical power blocs. At the beginning of this year of Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, visited the White House, and in March he met with German economy minister, Robert Habeck, the latter visit being to discuss how Qatar could help alleviate banson Russian gas into Europe. Prior to these visits, though, Qatar concluded a slew of long-term LNG supply deals with China that caused considerable concern in Washington (hence the visit of Al Thani to the U.S. in January).
Over and above the need for a good relationship between Qatar and Iran to ensure the optimal functioning of their huge joint gas reservoir, Russia and Iran see another area of particular vulnerability in Doha’s political makeup that can be exploited in the building out of a Gas OPEC, and that is its dislike for its other neighbor, Saudi Arabia. The blockade of Qatar from 2017 to 2021 was orchestrated by Saudi Arabia and actively endorsed by the UAE, Bahrain, and Egypt initially, with later support coming from Jordan, Libya, and other smaller states. It has never been forgotten by Qatar, and nor has the support that was given to Doha during the period by Iran, and by Russia, both independently and via Turkey.
Together, Russia, Iran, and Qatar account for just under 60 percent of the world’s gas reserves, and they were the three countries instrumental in the founding of the GECF, whose 11 members control over 71 percent of global gas reserves, 44 percent of its marketed production, 53 percent of its gas pipelines, and 57 percent of its LNG exports. Its long-term mission statement agreed upon in Moscow, is to: ‘Enhance the role of GECF in the global energy scene in order to support the sovereign rights of Member Countries over their natural gas resources, to maximize their value for the benefit of their people, and to promote their coordination on global energy developments with a view to contributing to global sustainable development and energy security’.
There have long been statements on plans to enhance the depth of cooperation between GECF members to the degree that it becomes as powerful in the gas market as OPEC once was (before the 2014-2016 Oil Price War was instigated against the U.S. shale oil sector and lost by Saudi Arabia). As far back as October 2008, high-level figures from Russia, Iran, and Qatar met in Tehran to discuss trilateral cooperation and the possibility of forming a cartel of gas-exporting countries similar to OPEC. A key part of the reason why the idea has not been fully realized has been the unwillingness on the part of Qatar to firmly align itself to the Russia-Iran alliance, which means that the swing supply part of the gas supply matrix – LNG – had remained outside the control Moscow and Tehran. It is true that Iran has sufficient gas resources to eventually become an LNG superpower, and part of the Gazprom-NIOC deal is geared towards making that happen, but it is also true that this is a medium- to long-term project.
Shorter-term, though, there are signs that Qatar’s reticence to commit to Gas OPEC may be ebbing away. The critical feature of Doha’s economic plans is for it to stay as the number one exporter of LNG in the world, having lost that spot for a period relatively recently, and in this context, the long-term deals with China are enormously important to it. The early notable example – that set a template for subsequent deals – was the long-term purchase and sales agreement by the China Petroleum & Chemical Corp. (Sinopec) and Qatar Petroleum for 2
million tons per annum (mtpa) of LNG for a term of 10 years. Following these early deals with China, Qatar signed LNG supply agreements with Iranian (and Chinese and Russian) ally, Pakistan – specifically, a 10-year sale and purchase agreement for Qatar Petroleum to supply the Pakistan State Oil Company with up to 3 mtpa of LNG to various ports in the country. This agreement builds on the earlier deal signed in 2016 for Qatar to supply Pakistan with 3.75 mtpa of LNG and came at around the same time as close Pakistan ally, Bangladesh, made a similar deal with Qatar.
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The term blowback becomes too mild to cover current events.
F’realz … it’s stunning but immensely satisfying to see western foreign policy undone by hubris and MIC greed.
•Proven gas reserves in the United States amount to 12.9-13.5 trillion cubic meters of gas.
•Natural gas production in the United States is more than 900 billion cubic meters of gas per year.
•The United States with the current level of production will be able to produce gas for another 13-15 years (and oil, probably for another 10-years, or so).
•Gas accounts for 36% of the US energy.
This means that in about a decade, the US, Europe, and Asia will all become dependent upon imports from Russia, Iran and Qatar, at least to some degree, and competing against the rest of the Third World.
However, prior to this, the US will be forced to halt exports due to domestic needs/national security.
Even Helen Keller can see the writing on the wall for this, and she’s dead: bye-bye, US empire– it’s been a slice. Too bad you had to take Europe down with you.
The abyss the collective human species will have to walk through before the hegemon finally accepts its fate and a reduced role in world affairs is terrifying to even contemplate.
With the recent increases in natural gas prices, expect the proven reserves to increase with the next EIA report.
Technically recoverable resources in the US amount to about 10x that amount. EIA estimates about 100 years of supply at current rates, although some of that gas will not be recovered due to state level bans on fracking.
StevRev and LawnDart: Any links for those data? Thanks
This’ll help:
The Potential Gas Committee, the USGS and the EIA estimate “technically recoverable resources,” which can be produced using current technology, regardless of the current price of gas. Those estimates change as technology changes, as has been the case in the past four years with fracking.
A more conservative estimate is demanded by the Securities and Exchange Commission,which requires public companies to provide reserves data in their annual reports. So-called “proven reserves” are only those that can be produced profitably at current prices. Those estimates change as prices fluctuate.
Another term, gas “in place,” includes amounts that are not currently recoverable, as was shale gas several years ago. Shale gas that was deemed unrecoverable five years ago, now accounts for over 30 percent of overall U.S. gas production.
Editor’s note: This story has been updated since it was first published on June 15, 2012..
Forgot link:
https://www.cnbc.com/id/47279959
Julian darley’s circa 2005 book ‘high noon for natural gas’ should be of use. Fracking made the timelines off by a few years, but clearly not by much. New and nastier methods will no doubt be tried to buy more time, but so-called reserve growth only goes so far.
Technically recoverable resources data found here and links within:
https://www.eia.gov/tools/faqs/faq.php?id=58&t=8#:~:text=The%20U.S.%20Energy%20Information%20Administration,gas%20in%20the%20United%20States.
Not it the US doesn’t have the water to do all that pumping…
StevRed: With the recent increases in natural gas prices, expect the proven reserves to increase with the next EIA report.
Absolutely correct, and a central point to understand.
I’ve been reading NC long enough to know there’s a difference between how much is in the ground, how much can actually be recovered, and how much can be profitably recovered. Although the last measure may be less relevant now as shown by the experience with shale.
Which is all to say, what do you mean by “proven” reserves? Could be a much shorter ride than 10 years.
Will: …what do you mean by “proven” reserves? Could be a much shorter ride than 10 years.
To the contrary. It could be a shorter ride than 10 years only if we can’t keep all the terrifying amount of methane that exists on the planet under the ground, permafrost, or seabed.
Because natural gas is methane. A little scientific literacy wouldn’t go amiss here —
https://en.wikipedia.org/wiki/Natural_gas
‘Natural gas…is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane ….’
The terms ‘technically recoverable’ and ‘proven reserves’ change meaning when the market value of ‘natural gas’ changes, as someone upthread pointed out, and that value has just soared. Thus, extracting natural gas from the methane clathrates under the seabed and permafrost has probably just become profitable. It’s certainly technically doable.
https://en.wikipedia.org/wiki/Natural_gas#Crystallized_natural_gas_%E2%80%93_clathrates
‘Huge quantities of natural gas (primarily methane) exist in the form of clathrates under sediment on offshore continental shelves and on land in arctic regions that experience permafrost, such as those in Siberia. Hydrates require a combination of high pressure and low temperature to form.
‘In 2010, the cost of extracting natural gas from crystallized natural gas was estimated to be as much as twice the cost of extracting natural gas from conventional sources, and even higher from offshore deposits.’
‘In 2013, Japan Oil, Gas and Metals National Corporation (JOGMEC) announced that they had recovered commercially relevant quantities of natural gas from methane hydrate.’
Obviously, the price of natural gas has soared from what it was in 2010. This has been driven by geopolitical events and may be quite temporary. But if it isn’t temporary, then extracting natural gas from under the seabed has just become profitable. Not incidentally, Russia’s interest in establishing dominance over the Arctic has been driven by the recognition of all that methane under the Arctic seabed.
So is anyone on here overly surprised?
If you treat much of the world as an enemy then expect them all eventually to make common cause and fight back.
The opportunity to make more money from resource / energy sales sounds a good, practical way to cement partnerships too. Unlike all this false ideology that the west offers.
I’d just be a bit careful about making too much of the ME dimension. Lebanon is not an “ally” of Iran: rather, Iran, through Hezbollah and tactical alliances with non-islamic parties, has a great deal of influence there. In turn, this influence is fiercely disputed by Saudi Arabia (which has also made tactical alliances with other non-islamic parties) and increasingly resented by much of the non-Shia population, in spite of the tendency in the past to see Hezbollah as “the resistance” against Israel. Actually, Lebanon doesn’t have allies, it just has major powers who competitively interfere in its affairs. Which is to say that, even if Lebanon actually gets to exploit its reserves properly, it will be subject to other pressures, not just from Iran.
As regards Qatar, for all its difficult relations with Saudi Arabia, I doubt if it would want to be seen as a junior partner in anything formal with Iran. After all, Qatar is terribly close to Iran, which is where the main perceived threat comes from. I think we may be moving, rather, into an era of intermittent alliances of convenience, with informal consultations and parallel movement, rather than anything as formalised as OPEC.
Blind Freddy can see that the world is sorting itself out into blocks of countries aligned with each other. And the biggest block may be Russia-China-Iran and perhaps India. This being the case and after reading this article, I am now wondering if commodities like gas will still flow as a result of what the market dictates or whether they will be reserved to one of those blocks. So here for example the surplus gas from Russia, Iran and perhaps Qatar will not flow to Europe but will flow east instead to China and other nations like India. If so, then the EU may find itslef in deep doo-doo energy wise.
US has its largest middle eastern base in Qatar. I’m sure this little wrinkle makes things a tad more complicated.
To counter that, Qatar has a big Turkish base in their country to help protect them. If the US “accidentally” shoots them in case trouble breaks out, then the US can kiss their bases in Turkey goodbye, including the one that has nukes stored in it.
How did that help during the blockade suffered by Qatar for several recent years?
A little background: Daniel Yergin’s history of the oil business (The Prize) discloses that there has never been any extended period in history when petroleum did not have a cartel or oligarchy managing it. From John D. Rockefeller’s monopoly, to the Texas Railroad Commission, to OPEC, oil has never been in a “free market.” Greg Palast believes the Iraq war was to keep the easier-to-recover, cheaper Iraqi oil in the ground. That the Russians, Iran, and others are discussing having a cartel that favors them rather than the U.S. is right in line with the history.
I’m puzzled about the back-room deals. When Russia tries to convince Iran to give up the Revolutionary Guard in order to get the nuclear deal done with the US – because the US can’t treat with a “terrorist” country, etc. – and then Putin goes on to elaborate that “The US will win the Ukraine war” it sounds like the decision has been made to let the US take Ukraine. Because as it stands, the Russians look to be in full control of Ukraine’s future. So it’s all bargaining chips for oil. I’d think that Putin might have meant that the US could have Ukraine except for the Donbass and Crimea but the comment wasn’t reported that way. One explanation would be that the US/West was planning not just an invasion of the Donbass but a full-on invasion of Russia’s access to Caspian oil. Just my imagination – but Russia was very reticent to go to war and conjured up this special military operation to smooth the edges. To obfuscate the fact that the West was ready and willing to go nuclear over oil. What is the explanation?
Good one on the boosters yesterday, Yves, and this piece opens things up too. Thank you.
Really wish someone on “Political Misfits” would at least give equal weight to sanctions and the not-good pandemic response in terms of likely factors contributing to the present mess. Equal weight while sorting through everything theorized.
Other than the obscenities list, they claim no one tells them what not to say.