Top global gas producers set four red lines

GECF members reject any artificial interventions in natural gas markets in addition to capping prices for political motives

Ewan White

A series of red lines were drawn at a meeting of gas producing countries in Algiers. Al Majalla looks at what they are, where they came from, and what they may mean for energy markets.

Top global gas producers set four red lines

Rabia Khreis

last update on 18 Mar 2024

At the recent annual Gas Exporting Countries Forum (GECF) meeting held in Algiers, members set out their red lines, saying what they would and would not do.

Notably, GECF members said they would not introduce a price cap on natural gas, as Europeans had asked for in the wake of Russia’s invasion of Ukraine in 2022.

GECF members account for roughly half the global gas exports. Its members include two of the big players: Russia and Qatar. Iran, which has one of the world’s largest proven gas reserves but is subject to sanctions, is also in the grouping.

Russia sends most of its exported gas through pipelines, whereas Qatar turns it into liquid natural Gas (LNG) and ships it.

In 2022, Russia’s pipeline exports were down around 40% from previous years, as Europe turned the taps off in response to its invasion of Ukraine. Since then, however, Russia has sought and found new energy customers in the East.

The other big global gas exporter is the United States (a non-GECF member) but in January, US President Joe Biden said he was pausing approvals for new LNG shipments, citing in part the impact of burning gas on the global climate crisis.

Here, Al Majalla examines this industry group’s four key areas, including how they intersect with global politics and how they might impact the world’s natural gas market.

EBA — Ministerial meeting during the 7th summit of Heads of State and Government of the Gas Exporting Countries Forum (GECF) in Algiers on 1 March 2024

Mind your business

In its declaration after their meeting in Algiers, the GECF said, “No to all unilateral economic restrictions taken without the prior approval of the UN Security Council.”

It also said, “No to any application of national laws and regulations beyond the borders against GECF member countries.”

They continued with a further "no", this time "to use climate change as a pretext for making decisions and taking actions that hinder investments in natural gas projects".

They saw this as "arbitrary discrimination" and contrary to trade rules.

In October 2023, GECF Secretary General Mohamed Hamel, from Algeria, said the 2022 energy crisis had "led to deep transformations affecting natural gas production, consumption, trade, and storage".

He said the price had reached an all-time high, as many countries "switched from gas to coal and lignite, mainly in the power generation and industrial sectors, with climate change mitigation goals undermined by energy security concerns".

The industry body says natural gas can help the world meet the UN's Sustainable Development Goals, which call for dependable, sustainable, and affordable energy for all. GECF members seem unimpressed with Biden's eco-concerns.

Prof Ali Cheknane, an Algerian researcher who specialises in solar energy, said the West had "declared the negative effects of natural gas to hinder and curb investments... even though natural gas is less environmentally damaging and is considered friendly because it's the only fossil source to achieve a renewable and secure energy transition".

GECF members account for roughly half the global gas exports. Its members include two of the big players: Russia and Qatar.

No discounts, sorry

News that the GECF has unequivocally ruled out a gas price cap will be most interesting to client states' treasuries.

In the last two years, soaring gas prices have forced several Western governments to intervene with subsidies, paying for the gas themselves beyond a certain price point.

GECF members said they "reject any artificial interventions in natural gas markets, including attempts to influence pricing mechanisms and risk management functions in markets, in addition to capping prices for political motives".

They said this would only "exacerbate market tightness and inhibit the necessary investments to meet the world's growing energy demand".

Algerian Professor Bouhaous Bouchikhi said GECF countries "want fair prices that serve the producer and the consumer, covering costs," adding that they "demand an acceptable and fair profit margin".

Cheknane Concurred: "Capping prices for political reasons has direct negative effects on the market, as it hinders and suppresses investments, fails to respond to the increasing global demand for energy each year, and leads to significant differences in supply and demand."

Analysts told Al Majalla that "the decision not to accept and support the idea of price capping is a clear response to a request made by the Europeans on 19 December 2022," noting that "Algeria vehemently rejected this request."

Reuters — A worker inspects an oil and gas pipeline at Nahr Bin Omar, north of Basra, Iraq, on 22 March 2022.

Some feel that setting a ceiling for gas prices violates free market laws and imposes restrictions on the gas trade.

Several gas-producing countries have argued for long-term contracts and natural gas pricing based on the oil and oil derivatives index.

Market balance

Mauritanian Professor Abdallah Seyid Ould Bah explained that the relationship between natural gas supply and demand between consumer, investor, and producer countries had to be considered.

Other factors, he said, were production capacity, storage capacity, and "the differences in cost, proximity, and distance from consumer markets." These made competition "inevitable... even among GECF countries themselves."

Regarding the competition among exporters, he said the more established players would "keep an eye" on new gas field finds in Africa and South America "as potential competitors in the European, British, and even American markets".

Cheknane said GECF members would need to cooperate "to achieve consensus on mechanisms according to the laws of supply and demand that regulate and frame the relationship among suppliers and consumers".

The Russia-Ukraine conflict has "upset the balance of oil and gas markets and affected the strongest global economies," he said, adding that war in Gaza and Houthi attacks on ships in the Red Sea had further complicated matters.

He speculates about the possibility of "gas-producing countries adopting Algeria's approach, which has become a reference today, based on medium—and long-term contracts, ensuring fair prices."

The decision not to accept and support the idea of price capping seems to be in response to a request made by the Europeans in December 2022.

Asserting sovereignty

The 12 core GECF members are Russia, Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Trinidad and Tobago, the United Arab Emirates, and Venezuela.

States with observer status include Iraq, Angola, Azerbaijan, Malaysia, Mozambique, Peru, Mauritania, Senegal and Mozambique.

The GECF's latest declaration includes its "rejection of… unprecedented and unjustified tax measures under the pretext of ensuring energy supply security".

It also emphasised the sovereign rights of member states over their natural gas resources, which is likely aimed at the multinationals investing in exploration and extraction by securing long-term contracts for gas in impoverished countries.

It seems that gas-producing countries want a legal framework to protect the wealth of poor nations from exploitation by big Western companies active in this field.

A final worry is that—having previously amassed significant wealth—the West may now prevent poorer countries from benefiting from their carbon resources by citing environmental concerns around burning gas.

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