Venezuelas Chavez Proposes South American Gas OPEC

Venezuelan President Hugo Chavez’s proposal for a South American organization of natural gas producers based on the oil-exporting cartel OPEC baffled analysts contemplating the announcement.

Chavez said on his radio talk show late Thursday that he had spoken to Argentine President Nestor Kirchner about the idea of forming “a kind of Organization of Gas Exporting and Producing Countries in South America.” He proposed naming it “Opegas Sur,” and said it would start with Venezuela, Bolivia and Argentina, but could be expanded.

Far-fetched and toothless is how some natural gas experts described the idea Friday. One reason is that none of the three countries exports natural gas outside of South America, which stymies their ability to influence world gas markets. Venezuela doesn’t export any gas at all.

“I’m not really sure what would be the objective,” said Anouk Honore, a natural gas analyst at the London-based Oxford Institute for Energy Studies. It might make more sense if the proposed cartel includes Trinidad, a major gas exporter, she suggested.

“It would have zero impact,” declared Bolivian petroleum analyst Andres Stepkowski.

He noted that the Organization of Petroleum Exporting Countries, or OPEC, influences oil prices because crude is sold on a spot market — that is, sold for cash and delivered immediately — so any output cuts are felt immediately.

Natural gas, however, is sold through long-term contracts, and suppliers and buyers use a formula to adjust the price every three or six months.

“I don’t see how they could implement such an association,” Stepkowski said.

But Chavez seemed optimistic as he described the idea Thursday night amid other ambitious plans, such as a continental gas pipeline and a “Bank of the South” to fund joint infrastructure and social projects.

“So you see, we have great things to do,” Chavez said.

A gas cartel might just work against Chavez’s integrationist goals, since it would mostly like hurt South American consumers. Brazil and Argentina are the biggest importers of gas from Bolivia, which has the second-largest natural gas reserves in South America, and Argentina supplies a small amount of natural gas to Chile.

The idea of a natural gas OPEC also has been fielded in recent weeks by Russia, alarming European Union countries, since they depend on Russia for 44 percent of their gas imports.

But Russia’s situation is very different: Russia is the world’s No. 1 gas exporter and also buys gas from the former Soviet states of Kazakhstan and Turkmenistan to sell to Europe. A cartel could help Russia protect its position, Stepkowski said.

“Venezuela has not yet managed to sell gas to anybody,” and is a long way from establishing itself as dominant middleman, Stepkowski said.

Venezuela, the world’s eighth-largest oil exporter, was a founding member of OPEC in 1960 and has been a major price hawk in the cartel. While Venezuela has the continent’s largest natural gas reserves, most of its production is injected into oil reservoirs to help induce the flow of crude. The country has yet to become a net exporter.

Source: AP via Yahoo News