MOSCOW (Reuters) - President Vladimir Putin has defended the long-term supply deals under which Russia exports its gas and warned that abandoning them would undermine global energy security.
Putin won the backing of strategic allies at a summit of gas exporters in an ornate hall in the Kremlin on Monday, but the gathering exposed divisions over the challenge that flexible liquefied natural gas (LNG) poses to Russia’s pipeline gas supplies.
The Russian leader has, since he first became president in 2000, deployed state gas export monopoly Gazprom (GAZP.MM) to project geopolitical power and restore prestige lost with the Soviet Union’s collapse.
But with a growing flotilla of tankers supplying LNG to world markets, the long-term export contracts that tie the price of Russian gas to oil, and set minimum purchase requirements for buyers, have come under threat.
Putin said that loosening the oil-price link or scrapping contractual ‘take-or-pay’ clauses would eventually lead to higher costs, not only for producers who need price security to justify long-term investments, but also for buyers.
“What we are talking about, above all, are attempts to dictate economic terms that are unacceptable to producers of gas delivered by pipeline,” Putin told leaders from the 13-member Gas Exporting Countries Forum (GECF).
“Unfortunately, the advocates of such a policy do not understand that abandoning the fundamental principles of long-term contracts would not only inflict a blow on gas producers but also bring with them significant costs.”
Putin hit out at the European Union, where energy market reforms under the Third Energy Package threaten Gazprom’s control over the gas supply chain from wellhead to consumer.
Gazprom’s loss of pricing power in Europe, which accounts for more than half its gas revenues, has driven down its market value to $78 billion from $360 billion in 2008.
Analysts say that supply fundamentals - gas is abundant while oil is relatively scarce - will make it hard for Gazprom to uphold an export-pricing model that dates back to the Soviet era.
Gazprom’s export monopoly is also under threat from reforms that would allow Russian rivals such as Novatek (NVTK.MM) and Rosneft (ROSN.MM) to export LNG. Energy Minister Alexander Novak said that the necessary legislation would be passed and take effect this year.
Putin, who began his third spell as president in May 2012, has set out to defend Russian interests on the world stage as he tries to reassert his authority after the biggest protests since he first rose to power.
He won support on gas pricing from Venezuelan President Nicolas Maduro, Bolivia’s Evo Morales and Abdelkader Bensalah, chairman of the Algerian Senate.
But the energy minister of top LNG exporter Qatar said that each member of the group has its own point of view on the development of the sector.
“We should remember that our pricing policy should also be derived from the interests of consumers, not only of producers,” Mohammed Saleh al-Sada told the summit, broadcast live on Russian television.
The GECF, holding its second summit, says that its members control 80 percent of world gas output and 70 percent of LNG production.
In reality, many of its members are net importers, leaving Russia and Qatar as the biggest players on international markets. They now face potential challenges from the United States, which has overtaken Russia to become the world’s largest gas producer, and Australia, which is expanding into LNG.
Founded more than a decade ago, the GECF drew comparisons with the Organization of the Petroleum Exporting Countries but failed to show the type of cohesion that has made the oil export cartel capable of influencing global crude markets.
“We don’t want to create a cartel,” Putin later told reporters. He said that Russia had won support from “all” GECF states for oil indexation, also expressed in a joint communique.
Yet Putin’s remarks showed little appreciation for the positions of some other members, reinforcing the impression that the GECF - headed by Russia’s Leonid Bokhanovsky - is a vehicle for Moscow to lobby its own agenda.
Also hindering cooperation are simmering tensions between Russia and some Gulf Arab gas producers over Putin’s support for President Bashar Al-Assad in Syria’s civil war. Qatar supports the Syrian opposition.
The GECF comprises Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela. Iraq, Kazakhstan, the Netherlands and Norway are observers.
Additional reporting by Denis Pinchuk and Vladimir Soldatkin; Writing by Douglas Busvine; Editing by Timothy Heritage and David Goodman