Derek Brower in London -

It doesn't take much to spook energy consumers in the West these days, so news that Russia "would consider" developing a natural gas cartel with other exporters has had politicians hitting the panic buttons again. The latest to line up was US Energy Secretary Samuel Bodman, who said at an energy conference in Houston, Texas on Wednesday that he would discourage any plans to form such a cartel.

"All countries can act as they see fit, but I think it's fair to say that efforts to manipulate markets, trying to organize the suppliers in such a fashion, over the long term is not going to accrue to the benefit of suppliers," Bodman was quoted by newswires as saying.

At the same conference, Russia's deputy minister of industry and energy, Andrei Reus, was at pains to stress that no one has yet laid out what such an organization would look like. However, the West's paranoia about such a cartel has been steadily growing since last year's memorandum of understanding between Gazprom, Russia's natural gas monopoly responsible for some 30% of European supplies, and Sonatrach, the Algerian state energy company that supplies 10% of European demand.

"The context of these meetings between Russia and Algeria makes us nervous," Andris Piebalgs, Europe's energy commissioner, said last year.

A worried commissioner

But Europe is even more rattled now. In January, the secretary of Russia's Security Council, Igor Ivanov, met Ayatollah Khamanei in Tehran. A good chat about uranium and arms sales included a proposal from the Ayatollah that Iran and Russia form a "gas Opec".

This was followed first by Putin's mischievous comment earlier this month that the cartel idea was "interesting" and one that Russia would explore. Earlier this week, he was at it again. "We do not reject the idea of a gas cartel," Putin said after meetings in Qatar and Saudi Arabia.

And the idea will come up again next month, when the Gas Exporting Countries Forum (GCEF), which some say would provide the foundation of the gas Opec, meets in Qatar.

Russia, Iran, Qatar and Saudi Arabia are, in that order, the world's wealthiest countries in terms of natural gas reserves. A cartel involving them would control almost 50% of world reserves. A cartel based on the GCEF, which has 16 members and includes Venezuela, Nigeria, Bolivia, and the UAE, would control almost 75%.

So the panic has some basis in reality. If such a cartel were to exercise control over prices – cutting exports when necessary to support the market, as Opec does with oil – consumer countries whose addiction to imported gas has grown steadily stronger in the past decade would be in trouble.

For Central and Eastern Europe, the possibility of further disruptions in their supply of Russian gas is especially worrying, given that Gazprom holds a near monopoly on exports to that region – and has been willing to cut exports for political reasons in the recent past.

Stop worrying

However, the paranoia about Russia's foreign energy policy seems to be clouding the judgement of many – not least politicians in Europe. Even if Russia genuinely wished to create a cartel, its chances of success are small. Furthermore, the question of whether a cartel could succeed reveals yet another contradiction – and a great deal of hypocrisy – at the heart of Europe's own energy policy.

A cartel stands little chance of succeeding for technical and political reasons. Cartels succeed by taking a liquid market and making it illiquid. The oil market is liquid, which is why Opec has been able to manipulate it. The natural gas market is not, which is why a cartel would be irrelevant. Gas is traded through long-term contracts down pipelines, with buyer and supplier committed to take-or-pay contracts. Even in the liquefied natural gas business – where a spot market is developing – the bulk of the world's supply is also tied up in long-term contracts.

Another technical reason is that Iran, considered to be the gas cartel's biggest enthusiast, has lots of gas in the ground, but exports almost none of it. Even the small amount of gas it sells to Turkey is unneeded in that country. So Iran's contribution to a gas cartel would be negligible. The same is true for Saudi Arabia: it exports no gas, making its wealth of gas reserves irrelevant to any cartel.

And political reasons make a gas Opec even less likely. Despite supporting Iran over the nuclear issue, Moscow considers the country its greatest potential rival as a supplier of gas to Europe. In Armenia and Turkey, Gazprom has been busily working to ensure Iran's gas gets no foothold in either of those transit countries (click here").

Indeed, Russia's support for Iran's nuclear ambitions has two benefits: it profits the country's nuclear exporters and it keeps sanctions on Iran and Western capital out of its gas sector. Iran seems to believe that Russia is an ally in the energy sphere. It isn't.

Meanwhile, Qatar's energy policy remains staunchly pro-consumer. It has enormous wealth in the ground and wishes to capitalise on it for a long time. It isn't in the business of threatening its main markets. As for the GCEF, its lack of organisation – the March meeting has been postponed twice – is notorious.

More Euro-confusion

Yet the greatest political irony involves Gazprom and the EU. It is the EU that wishes to see greater liquidity in gas markets, including a continental gas spot market and the end of long-term supply contracts. There is good business logic behind it. But if such a market took shape it would also lay the grounds on which a cartel could succeed. The closer gas comes to being a genuine commodity like oil, the more chance there is for a gas Opec. Gazprom, on the other hand, wants those long-term contracts – the same that render any cartel meaningless – to continue.

The best way to read the jaw-jawing about the gas Opec is as an obvious, though bluff, warning to consumer countries, especially in Europe. The EU has, after all, spent the past two years talking about how to diversify away from Russian gas. That carries an explicit threat to Russia's livelihood. Europe's ambitious project to build the Nabucco pipeline from the Middle East to Central Europe, for example, was explicitly designated as an "anti-Gazprom" line. And the EU's efforts to persuade its member states and energy companies to act in unison ("speak with one voice") when negotiating with Russia looks, to Moscow, very much like an attempt to create a monopsony – a cartel of buyers.

That the EU should then cry foul when Russia discusses relations with other more willing partners in the energy sphere is seen as yet another example of Brussels' confused energy policy. The EU's and Russia's most important and reliable partners in the gas market are each other: observers say they should start to act like they know that. Failing that, Brussels ought to hope, against the odds, that a gas cartel emerges. A serious threat to the continent's energy supply and economic growth might for the first time bring about a serious and credible response.

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