Technology has long existed to turn the world's stranded natural gas reserves into portable liquefied natural gas (LNG), moving it easily to where there is demand. In the past few years, however, growing world demand for natural gas has made LNG economics-turning the gas into a liquid, shipping it to facilities abroad and regasifying it-more viable. This presents a huge opportunity for gas to become a truly global commodity, creating a worldwide spot market for the energy source. Could key countries that hold more producible natural gas than they need domestically form a "Gas OPEC," controlling price-or more importantly, gas supply? "The dead weight of all the huge capital investment might mitigate against formation of a gas cartel," says Ben Schlesinger of consultancy Benjamin Schlesinger & Associates in Bethesda, Maryland. "And how would LNG customers react?" It's no surprise, however, that major surplus gas producers are at least thinking about it. This past April, a group representing 14 of the largest gas-exporting countries in the world met in Port of Spain, Trinidad, under the banner of a four-year-old group called the Gas Exporting Countries Forum (GECF). The member countries already account for 53% of gas imported to the industrialized nations that make up the Organization for Economic Cooperation and Development (OECD). GECF members are Qatar, Russia, Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Trinidad, UAE and Venezuela. The largest LNG exporters today are Indonesia, Malaysia, Algeria, and Trinidad and Tobago. Qatar and Iran will become leaders soon when infrastructure projects are completed in South Pars Field. (For more on this, see "Energy Opportunities in Qatar," Oil and Gas Investor, September 2004.) Russia, a member of GECF, holds 33% of the world's known gas reserves, or 1,700 trillion cubic feet (Tcf), and will be a key supplier in the future. (For more on this, see "The Russian Energy Sector" in this issue.) Indeed, a deal for the first Russian LNG shipment to North America was recently finalized. But most of Russia's gas will be sold in the traditional way-via pipeline to Europe and to increasingly gas-hungry China and Japan. The GECF says it wants to promote cooperation between its members and gas-consuming nations and "come up with a fair price," Trinidad energy minister Eric Williams was quoted in press reports. The group does not intend to manage gas nor LNG production, however, Williams added. GECF members have agreed to set up an office in Qatar to begin developing a supply-and-demand model that could assist in price decisions for long-term contracts, according to reports. Some observers believe that the very fact that the group met implies the beginning of cartel talk. Others believe that while price arbitrage exists, it is highly unlikely that a gas cartel will be formed, due to the prevalence of long-term LNG contracts and the absence of spare LNG capacity. Currently, only some 5% of LNG supply is available on the global spot market. The balance is already promised in long-term contracts. "There is a huge amount of vested interest here and no need to collaborate with any other participant," says Gavin Law, head of U.K.-based research firm Wood Mackenzie's LNG practice. "This gas group does a lot of talk but it never does anything. They are all competing with one another for long-term contracts." The likelihood of collusion "remains low due to divergent and sometimes opposing strategic aims of individual producers," agrees Gary Howorth, a senior director with the Washington-based research firm PFC Energy's global gas group. "The situation could change over the longer term (more than 10 years), but is unlikely to do so." Meanwhile, collective strategy and cooperation could be brewing in Latin America. Venezuelan president Hugo Chavez has proposed that South America's gas producers form a regional gas company, Gas del Sur, to assure indigenous gas resources remain for Latin American consumers, as opposed to being shipped to hungry markets elsewhere for higher prices. Venezuela holds the largest gas reserves in Latin America-some 150 Tcf. But some 70% of the world's proved gas reserves are in the Middle East and Eastern Europe (including Russia). Only 9% is in the Americas, 8% in Asia and 7.6% in Africa, according to 2003 data from the U.S. Geological Survey. What if there were a cartel? Researchers at the James A. Baker III Institute for Public Policy at Rice University in Houston modeled what would happen if supply were restricted by an alliance of major suppliers, considering the fact that excess gas supply is concentrated in a few countries, including current OPEC members. "Many of these countries are likely to place gas production in the hands of their respective national oil companies. It may therefore be no more difficult for these countries to cartelize the developing international gas market than it was for them to cartelize the oil market," the March 2005 report says. Gas-field development might be slowed to put upward pressure on gas prices. The required higher rate of return on gas-infrastructure investments might restrict construction of gas-export facilities and further delay exports. Reduced LNG exports from the Middle East to the Atlantic Basin may raise the price of LNG, thus allowing Venezuela to make more money on its gas production or liquefaction capacity without having to significantly hold back its own supply or exports. Nations that increase gas output if a cartel were formed include Iran, Algeria, Russia, Turkmenistan, Azerbaijan and Australia. Current politics inside OPEC indicate that "...where Algeria and Iran are pushing for the strengthening of cartelization for natural gas exports, Qatar is on the record opposing such an effort," the researchers report. The Baker Institute study posits that if gas exports decline from the Middle Eastern "Gas OPEC" producers, Russia from the 2020s-on would be the largest single replacement supply, through LNG exports from Russian Atlantic ports to North America. A cartel is not likely for the foreseeable future, according to most experts. Reserves and exports are highly concentrated, with Russia alone having 28% and the top seven producers having 79% of export capacity. Substantial producers such as Canada, Norway and The Netherlands would likely not join a cartel. It's not clear what "fringe" suppliers might do. The Baker Institute World Gas Trade Model estimates that Russia will dominate energy supply in Europe and Asia because oil and gas is cheaper and easier to send via pipelines to Europe and China than by ocean-going LNG shipments. In contrast, South American gas would have to flow to North America as LNG. A number of obstacles stand in the way of major gas producers being able to work collectively to control LNG production or price. One is the lack of a wide spot market. PFC's Howorth says, "There is currently no real spot price for gas, which is one advantage OPEC had in the past. In fact some have argued that a spot price is a requirement for a cartel. "This is partly due to the fact that LNG contracts are negotiated for long periods of time. This locks producers into their markets and to certain prearranged deal terms on both price and production, thus limiting their ability to coordinate production levels." In a spot market, even small shortfalls of supply can cause price spikes. But LNG cannot be wheeled to a new buyer on the spot. It may take weeks to arrive. "Fully flexible volumes are pretty thin," Law says. "You have to make a lot of things happen to get a cargo." Beyond the end of this decade, increased North American gas demand may still challenge even the LNG industry's ability to provide enough gas, which would seem to indicate higher gas prices in the offing, reports Massachusetts-based consultancy Cambridge Energy Research Associates (CERA). "The spot gas market in the U.K. and emerging spot markets in northwest Europe and Italy are taking signals from the supply decline in the North Sea and from global markets-notably North America-via the LNG arbitrage opportunities in the Atlantic Basin," says CERA senior director Simon Blakey. Gas demand in the U.K. is going up. The first LNG cargo delivered to a new plant south of London arrived in July from Algeria. Two other receiving terminals are under development in neighboring Wales. The LNG market is now oversupplied, with buyers having as much "power" as the suppliers who might look to form a cartel, says Yvonne Sisler, a manager with PFC. "This would make it difficult to control LNG in the same way as oil," Sisler says. Still, a small spot market appears to be emerging, mostly due to the growing U.S market. Law says, "For the U.S. to be a price-maker is a long way off." It will be years before a Gas OPEC appears, if at all. "People are looking for a sensation, like a 'conspiracy theory' such as Gas OPEC, but it isn't likely. Gas is not yet a commodity, but probably will be post-2015," says Law. "GECF will try to coordinate on some things, but for a lot of those countries, cooperation is not in their best interest."