Gas producers should work together to limit the impact of spot sales on their long-term deals, top gas exporter Russia said on Sunday. A glut in global gas supplies has depressed prices in spot markets, so consumers have looked to reduce what they purchase on long-term contracts to instead buy as much as they can in the open market.
"The spot market is also important, but it should not start to compete with long-term contracts in the form that is happening today," Russian Energy Minister Sergei Shmatko told reporters in Algeria's Mediterranean resort of Oran, where the holders of 70 percent of the world's gas reserves were set to meet on Monday.
"We supply within the framework of long term contracts, and we believe that other suppliers should or could express their approach to that and join with us." Shmatko stopped short of calling for other members of the Gas Exporting Countries Forum (GECF) to reduce spot sales, a plan that host country Algeria aims to put before the forum's 11 members on Monday.
The GECF has never before co-ordinated supply policy, but analysts say the pain from low prices may force them to consider action. New supplies from unconventional sources in the United States combined with a fall in demand due to the global economic downturn have hit gas producers' export income.
The GECF's final communique after the meeting would register ministers' concern about the gas market and the need to draft a consolidated approach, Shmatko said. But he gave no more detail on what that approach would be.
Most of Europe's gas is delivered on long-term contracts through pipelines. Globally, an increasing volume is being shipped as liquefied natural gas (LNG).
LNG suppliers have more flexibility to target the best-paying spot markets for delivery of their cargoes of gas chilled to liquid form for exports on specially designed ships.
Qatar is the world's largest LNG exporter, and is also a member of the GECF. It sends cargoes to Europe, Asia and the United States. Algeria's Energy Minister Chakib Khelil said on Saturday the group needed to find an appropriate price for gas for consumers and producers. He has warned consumers could face a supply crunch later due to low prices now as producers avoid making investment in new supplies. Qatar's energy minister Abdullah al-Attiyah on Sunday said gas prices should be more closely connected to oil prices, which hit an 18-month high earlier in April. "Current prices aren't fair. They should be linked to oil prices," he told reporters.
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