Palin Thwarts The Gas Cartel

By INVESTOR’S BUSINESS DAILY | Posted Tuesday, October 14, 2008 4:20 PM PT

Energy: Iran resurrected its idea of a “gas cartel” to control gas markets like oil. But even if it succeeds, the U.S. won’t be vulnerable. If you wonder why, look to the governor of Alaska.

That’s right, Gov. Sarah Palin took a powerful preemptive step in August to shield the U.S. from a coming gas cartel. Palin’s effort to create the Trans-Canada Alaska gas line — which would provide a vast new trove of natural gas each day to the U.S. — effectively nullifies the emerging gas cartel’s potential impact on America.

If OPEC strikes you as a bad group, the new cartel for natural gas, led by Russia and Iran, will be even worse.

Russia has made standoffish statements about the plan, but won’t repudiate it. “A gas OPEC is an interesting idea,” then-President Vladimir Putin declared last year. Based on Russia’s moves since, the Heritage Foundation’s Ariel Cohen believes it’s a stealth move from the Kremlin to keep buyers unperturbed as the cartel slowly forms.

He’s right. This week in Tehran, Iranian President Mahmoud Ahmadinejad quietly drew up the organization’s charter and will take it to Moscow next week.

One reason for the West’s complacency is the difficulty in founding a gas cartel. The natural gas market isn’t like the oil market, which trades at one price all over the world and can ship its product almost anywhere.

Most natural gas sales, by contrast, depend on pipelines and 20- or 30-year delivery contracts for pricing, both of which make price manipulation difficult.

In 10 years, that’s likely to be different. The market is changing fast. Global trade in liquified natural gas, or LNG, which requires no pipelines, will grow sharply. The U.S. will see a 58% increase in LNG imports in just two years, according to the Energy Department.

As the U.S. uses more natural gas, Iran’s Gas Exporting Countries Forum is taking off.

Instead of the tough task of controlling prices right away, the group will first gain control of reserves through state firms in 14 countries, including hostile states such as Venezuela and Bolivia.

The next step will be “cooperative” ventures to strengthen the network. The final goal is to control production.

It’s nothing but a scheme to carve up monopoly spheres of influence that can tell customers whom they can buy from. That will kill competition and create incentives for meddling. Russia, which readily cuts off gas to neighbors over political d isputes, has signaled that it will keep using gas as a political weapon.

That bodes ill for the global gas market, and some nations may become vassal states if the cartel dynamic kicks in.

As for U.S., already fairly self-sufficient in natural gas, we will be in a more solid position to defy the coercion. Palin’s pre-emptive step to foil Ahmadinejad’s scheme is in the Alaska gas line. In an Amazonian move, Palin effectively beat back the ambitious petrotyrants 10 years early with her $40 billion, 1,715-mile gas pipeline across Canada that will bring 4.5 trillion cubic feet of gas a day — nearly one-fifth projected needs — to the lower 48 within a decade.

Almost entirely off the news radar, Palin mowed down 30 years of legislative squabbling in the Alaska statehouse and then triumphantly signed off on the pipeline in August, stating her aim was energy independence.

“Alaska should be the leader of an energy policy that gets us there,” she told IBD over the summer.

Her swift response mirrors her strong support for drilling for oil and gas in Alaska’s Arctic National Wildlife Refuge. Asked about forecasts that its oil could take 10 years to come to market, Palin told IBD that planning was critical to energy security.

“You have to consider that if we’d started (drilling ANWR) five years ago, we wouldn’t be in this position right now,” she said.

Her gas line shows the same foresight, this time aimed a t neutralizing enemies that will otherwise grow in strength. Palin’s pipeline will be a critical strike for energy security against petrotyrants intent on extending their influence. It will come online at precisely the moment the gas cartel could develop into a power.

This isn’t to say petrotyrants will go away, that the U.S. won’t be in the crossfire. U.S. self-sufficiency in natural gas will be roughly equivalent to Brazil’s in oil. The South American country which sees few problems from petrotyrants in the wake of its oil independence based on its willingness to drill. The U.S. likely will have the same strength in natural gas.

Energy security is a peculiar concept. Conventional wisdom holds that the U.S. has too few resources to bother drilling. But a nation need not have massive oil reserves for independence; all it needs are competitive alternatives — such as natural gas. Heading off the gas cartel is an important move, and Palin deserves recognition.

Palin’s foresight is a major contribution to U.S. energy security that will reverberate well beyond the election, no matter how it turns out.