Natural gas cartel would rival OPEC -- How to profit

August 16, 2006

Last week, Algeria and Russia coordinated gas prices in an agreement that could be the first step towards a gas cartel that would rival OPEC. Russia is the largest producer of natural gas in the world, while Algeria is the largest gas producer in OPEC. In March, Algeria gave Russia monopoly access to its gas fields, the eighth largest in the world. In return, Russia forgave Algeria’s $4.7 billion in debt, while Algeria agreed to buy $7.5 billion in Russian jet fighters.

Both countries belong to GECF (Gas Exporting Countries’ Forum), whose 15 members control 75% of the world’s natural gas reserves, but aren’t yet a cartel. The members include Iran, with the world’s third largest gas reserves, and Qatar, with the fourth largest reserves. Other countries who have expressed interest in a gas cartel are Kazakhstan, Uzbekistan and Turkmenistan.

What It Means:
A gas cartel would ensure higher prices in both gas and oil. Since most of these countries are also members of the Shanghai Cooperative Organization, they are likely to give preferential treatment to China rather than the U.S.

Action Steps:
Keep 30% of your total net worth (including the net equity in your home) in hard assets. If the net equity in your home is less than 30% of your net worth, then add a good commodities index fund to take advantage of high oil and gas prices. If the net equity in your home is greater than 30% of you total net worth, consider downsizing to reduce your exposure to a declining real estate market.

Source: Radio Free Europe, August 14, 2006; Mosnews, May 26, 2006