07MOSCOW1606, RUSSIAN ENERGY: GAS OPEC — NOT QUITE

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Reference ID Created Released Classification Origin
07MOSCOW1606 2007-04-10 14:14 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO9837
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #1606 1001414
ZNY CCCCC ZZH
O 101414Z APR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9097
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 1097
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 001606 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA 
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK 
DOE FOR HARBERT AND EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
NSC FOR KLECHESKI AND MCKIBBEN 
 
E.O. 12958: DECL: 04/10/2017 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIAN ENERGY: GAS OPEC -- NOT QUITE 
 
 
Classified By: Econ M/C Pamela G. Quanrud.  Reasons 1.4 (b/d). 
 
1. (U) Very few in Moscow believed that the April 9 Gas 
Exporting Countries Forum in Doha would result in a decision 
to set up an OPEC-like cartel.  In the run-up to the meeting, 
Russia's representative Energy Minister Viktor Khristenko 
said, "the fact that a cartel agreement on price formation 
for gas will not be signed in Doha is clear."  However, 
President Putin indicated that he thought the idea was 
"interesting," doing nothing to dispel rumors that it may 
actually happen.  Referring to Europe's discussions regarding 
becoming less energy-reliant on Russia, Valery Yazev, 
concurrently a member of the Duma's energy committee and head 
of the Russian Gas Association, has accused European 
bureaucrats of "provoking gas producers to take actions in 
response." 
 
2. (C) Every contact we spoke with downplayed the idea of the 
formation of a cartel -- at least for now.  Ron Smith, head 
of research at Alfa Bank, said that a cartel would not work 
because they cannot "squeeze off the flows to support higher 
prices" given the long-term nature of natural gas contracts. 
He, and others like Vlad Konovalov, head of the Petroleum 
Advisory Forum, Shawn McCormick of TNK-BP, and Ed Verona of 
ExxonMobil, agreed that the Doha discussions were probably 
more about Russia trying to protect its market share in 
Europe than about setting prices.  All said that OPEC-like 
price-setting will only occur when liquefied natural gas 
(LNG) is prevalent enough that there is a true "global 
price."  Smith said this could happen if LNG reaches 25 
percent of the global market but that this could be 20 or 
more years out. 
 
Comment 
------- 
 
3. (C) For Russia, the threat of a cartel can be useful.  It 
may provide leverage for Russia in its Partnership and 
Cooperation Agreement negotiations with the EU.  Russian 
energy policymakers are undoubtedly aware of the market 
constraints arguing against the formation of a cartel -- the 
prevalence of long-term contracts and regional, rather than 
global, pricing structures.  Additionally, the fact that gas 
prices are tied to oil prices adds a further complication. 
Given this, the results of the gathering -- further 
discussion about costs and how prices are formed -- is about 
all the GOR could have expected. 
BURNS

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