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Shtokman field development requires special state control

November 15, 2011, 20:08 UTC+3

It is planned that the final investment decision on Shtokman will be made by yearend

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MOSCOW, November 15 (Itar-Tass) — Chief executive director of the Shtokman Development AG Alexei Zagorovsky said the first phase of the project to develop the Shtokman field requries "special control on the part of the state."

Zagorovsky was speaking at the Gas Russia 2011 forum on Tuesday.

"Shtokman Development AG asked the Finance Ministry to consider the possibility of tax incentives," he said.

"We're now in talks with the Ministries of Energy and Transport over the issue," he said, underlining that all projects of such a scope need a special regime.

"The drawing of norms our efforts have initiated will become a norm with other operators who will be running projects similar to ours," the executive director said.

Until the end of this year, the company is supposed to make the final investment decision on the project. It cannot reach profitability level without tax incentives yet.

If the project is not implemented, the Russian budget will fall short of some 100 billion dollars, Zagorovsky said, noting that "we'd like to get tax incenstives at least at the first payback stage."

The Shtokman field, discovered in 1988, was named after the Soviet geophysicist Vladimir Shtokman. It is located in the central part of the Russian offshore zone in the Barents Sea, 550 kilometers northeast of Murmansk. The field's reserves make up 3.9 trillion cubic meters of gas and 56 million tons of gas condensate. Of those, the area within Gazprom's license contains 3.8 trillion cubic meters of gas and 53.4 million tons of gas condensate. After the commissioning of the extraction facilities and bringing them to rated capacity, the Shtokman field will be the world's largest deposit developed in these latitudes. Also, it will become a resource base for boosting the supplies of Russian natural gas, both pipeline gas and LNG.

The development of the field is divided into three phase. The commissioning of 1st phase facilities will provide for annual production of 23.7 billion cubic meters of gas, which will increase to 47.4 billion cubic meters at the 2nd phase.

During the 3rd phase, production will reach the rated capacity of 71.1 billion cubic meters of gas a year. The volume of annual production of gas at the field will match annual gas consumption in Germany.

In the early 1990s, Gazprom launched negotiations with a group of five Western companies over development of the field. In 1992, the foreign consortium was pushed out by the Rosshelf consortium, a Gazprom subsidiary that comprised 19 Russian companies. in August 1995, Gazprom and Rosshelf signed a letter of intent with Norsk Hydro of Norway, Conoco Inc. of the United States, Neste Oy of Finland, and Total S.A. of France to evaluate the possible joint development of Shtokman field.

In January 1996, a project of a large floating LNG plant was designed, but this plan was abandoned and in March 2000, Rosshelf began to develop plans for production and construction of a natural gas pipeline from the field via Murmansk to Vyborg. In 2001, Gazprom announced its intention to develop the gas field together with Rosneft. In 2002, the license for the field development and recovery was transferred from Rosshelf to Sevmorneftegas.

On 20 June 2005, Russia and Norway signed a number of agreements related to development of Shtokman field. In June 2005, Russia signed a memorandum with France. In August 2005, Gazprom received bids from ConocoPhillips, ExxonMobil, Norsk Hydro, Statoil, Mitsui, Sumitomo Corporation, Royal Dutch Shell, Chevron Corporation, and Total to develop the field. In September 2005, Gazprom selected five companies - Statoil, Norsk Hydro, Total, Chevron and ConocoPhillips - as finalists in a search for partners to develop the field, but in October 2006 decided to reject all potential partners.

On 13 July 2007, Gazprom and Total of France signed a framework agreement on design, funding, construction and operation of the Shtokman Phase one infrastructure. On 25 October 2007, a similar contract was signed between Gazprom and StatoilHydro of Norway. The consortium of three companies, Shtokman Development AG, was established on 21 February 2008 in Zug, Switzerland.The development costs are estimated at US$15 billion to US$20 billion, although deputy chairman of Gazprom's management committee Alexander Medvedev estimates the field's development costs at 12 billion U.S. dollars.

It is planned that the final investment decision on Shtokman will be made by yearend.

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