Russian-led gas producers' group raises fears of cartel

Russia's Prime Minister, Vladimir Putin, yesterday warned that the era of "cheap gas" was over as the leaders of the world's 12 biggest exporters of natural gas met in Moscow to form a body – to be known as the Gas Exporting Countries Forum (GECF) – which some worry could be dominated by Russia and operate as an Opec-style cartel.

Mr Putin said that the "cost of exploration, gas production and transportation are going up, meaning that the industry's development costs will skyrocket". He predicted that the financial crisis would also push up the price of natural gas, adding that the new group would co-operate to ensure "predictability" in the market. Russia, as the world's biggest gas producer, is the prime mover behind the formation of the body, which will include Qatar, Iran and Venezuela.

Mr Putin's comments come as Russia is accused of increasingly belligerent behaviour towards Ukraine over gas payments. It has threatened to cut supplies to its neighbour, which it accuses of failing to pay for exports. The government in Moscow has given President Yushchenko's administration until the end of the year to pay what analysts suggest could be as much as $2bn (£1.4bn) in unpaid debt owed to Gazprom, the Russian state-owned gas producer.

The row between Moscow and Kiev will reverberate elsewhere: the European Union imports 80 per cent of its gas through pipelines in Ukraine.

Major producers have complained this year that the price of gas is not high enough. The formation of the group yesterday extends a tripartite agreement reached this year between Russia, Iran and Qatar, who formed a "gas troika" to agree strategy on exploration and production.

Iran's oil minister, Gholam-Hossein Nozari, said yesterday that the new group should ensure that producers avoid "unnecessary and harmful competition".

A gas producers' group, which is expected to be formally recognised at the Moscow meeting with the signing of a joint charter, has met informally since 2001, but without any members, agreements or management. The emergence of an official body will worry Western diplomats and energy officials, who are already subject to Opec's decisions about oil production, and consequently price volatility.

Sergei Shmatko, Russia's energy minister, said that the GECF would not act as a cartel and would not influence gas prices by altering production: "Today we will not be discussing the need to co-ordinate the level of production."

Dmitry Lukashov, an analyst at UBS, suggested that the formation of the GECF was window-dressing: "The gas and oil markets are completely different. Opec is designed to eliminate competition between its members. Gas exporters, however, do not share export markets so there is little point to this organisation."