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Putin: Gas Prices Will Rise

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MOSCOW — The price of natural gas is set to rise as the world financial crisis and rising costs hurt production, Russian Prime Minister Vladimir Putin said Tuesday as he presided over a forum of gas-exporting nations laying the groundwork for closer cooperation.

Energy ministers from fourteen gas-rich countries signed an agreement to set up the Gas Exporting Countries Forum headquartered in Doha, Qatar.

The body has been meeting since 2001, but until now had no formal membership or management. Putin said the organization will work "perfectly in line with international norms."

He predicted the financial crisis will hit the gas industry harder than other energy sectors, because the gas market is more sluggish.

"We can expect the crisis to have a bigger effect on it than on oil business," Putin said. "Costs of exploration, gas production and transportation are going up _ it means the industry's development costs will skyrocket. The time of cheap energy resources, cheap gas is surely coming to an end."

Analysts expect prices to drop in the short term _ through the spring _ as lower global demand hurts prices. Longer-term, however, experts fear the financial downturn may starve the gas industry of the funds it needs to keep production up.

Earlier in the day, Deputy Prime Minister Igor Sechin brushed off suggestions that Russia would dominate the gas exporters' body.

"All member countries have equal powers," Sechin was quoted saying by the ITAR-Tass news agency. "It would be wrong to say who would be the leader."

Russia's Energy Minister Sergei Shmatko reiterated that Russia does not intend to influence gas prices by curbing production. "Today, we will not be discussing the need to coordinate the level of production," he told reporters after the talks.

"The basic rationale for the organisation makes a lot of sense," Uralsib's analyst Chris Weafer said in a note to investors. "Gas is an unstructured industry that needs a great deal of investment to open up new fields and to create new technologies. In the Western consumer countries, such a grouping looks too much like a price setting cartel, even if it could not possibly fix price targets, nor control production, for at least another decade."

Unlike oil, which is traded on an exchange that constantly updates the market price based on supply and demand, most gas is sold under tight contracts that allow buyers to lock in prices for years. As a result, a cartel would likely have little influence.

Alexander Nazarov, analyst with investment bank Metropol, noted gas prices are hard to influence as most exports run in pipelines from country to country, leaving little choice in trade partners. However, an increase in liquefied natural gas supplies _ which are shipped, just like oil _ can change that fact in the long-term, he said.

"The gas and oil markets are completely different," Dmitry Lukashov from UBS said. "OPEC is designed to eliminate competition between its members. Gas exporters, however, do not share export markets. So there's little point in this organization."

The meeting was held a week before a deadline for Ukraine to repay its gas debts to Russia. Russia's state-controlled gas company Gazprom has warned that it would cut gas supplies to its neighbor on Jan. 1 if it fails to pay off a $2 billion gas debt, raising the stakes in a dispute which could send shock waves across Europe.

Russia's Shmatko urged European countries to apply pressure on Kiev to make sure that Russian natural gas supplies to European consumers flow uninterrupted across Ukraine.

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