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Putin Pushes Russian Agenda at Global Gas Summit

By MarEx 2013-07-01 11:18:00

President Vladimir Putin defended the long-term supply deals under which Russia exports its gas on Monday, 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, but his speech laid bare divisions over the challenge to its pipeline gas supplies posed by more flexible liquefied natural gas (LNG).

The Russian leader has, since he first became president in 2000, deployed state gas export monopoly Gazprom to project geopolitical power, helping to 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 that set minimum purchase requirements for buyers have come under increasing threat.

Putin said that loosening the oil-price link or scrapping the 'take-or-pay' requirement would 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."

He added: "In the final analysis, this would undermine the energy security of buyers."

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 a peak of $360 billion in 2008.

Analysts say supply fundamentals - gas is an abundant commodity while oil is relatively scarce - will make it difficult for Russia to uphold an export-pricing model that dates back to the Soviet era.

CONDITIONAL SUPPORT

Putin, who began his third spell as president in May last year, has set out to defend Russian interests strongly on the world stage as he tries to reassert his authority following the biggest protests since he first rose to power.

He won support on gas pricing from Venezuelan President Nicolas Maduro and Bolivia's Evo Morales, while Algeria also backed Russia's preference for its long-term contract model.

"Exporting countries could continue to follow this direction (long-term contacts) to develop new projects," Abdelkader Bensalah, chairman of the Algerian Senate, said. "We should coordinate our moves."

But major LNG suppliers were frank in stating alternative positions, with Qatari Energy Minister Mohammed Saleh al-Sada saying 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," al-Sada told the summit, which was broadcast live on Russian television.

The GECF, holding its second summit, says it 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 face challenges from the United States, now self-sufficient in gas, 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 (OPEC) but failed to show the type of cohesion that has made the oil export cartel capable of influencing global crude markets.

Putin's remarks showed little appreciation for the positions of other members, reinforcing the impression that the GECF - headed by Russia's Leonid Bokhanovsky - is viewed by Moscow as a vehicle for lobbying its own interests.

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.

By Alexei Anishchuk and Katya Golubkova; Additional reporting by Vladimir Soldatkin; writing by Douglas Busvine; editing by Timothy Heritage and James Jukwey (C) Reuters 2013.