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Gazprom postpones decision on Shtokman

June 10, 2013, 20:59 UTC+3

The development of the field has been postponed several times

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MOSCOW, June 10 (Itar-Tass) - Gazprom’s Management Board has made no decision on Phase One of Shtokman field development, a source familiar with the results of the Board’s meeting, told ITAR-TASS on Monday, June 10.

The analysis shows that the current technology (extractive vessel and a two-stage flow) cannot optimise Phase One costs. Now the relevant divisions will make calculations with a view to combining all three development phases and using alternative technologies.

After the issue has been considered by the Management Board it will then be referred to the Board of Directors on June 18 for approval.

In late May, Andrei Kruglov, Deputy Chairman of the Management Board, said the company might postpone the development of the Shtokman gas condensate field “for posterity”. However the statement appeared to surprise some other Gazprom senior executives.

The development of the field has been postponed several times. The shareholders’ agreement for Phase One expired last summer but a new one was never concluded even though it was hoped that it would be signed by the beginning of autumn.

Further Phase One development in partnership with Norwegian Statoil and French Total could have been possible only if costs were slashed, but partners failed to make the project more cost efficient.

Statoil withdrew from the project after the end of the shareholders’ agreement (July 1, 2012). In March 2013, Gazprom and Total agreed to work out a Roadmap for signing a new project implementation agreement.

Last year, Vsevolod Cherepanov, a member of the Gazprom Management Board, said that the implementation of Shtokman Project Phase One in the Barents Sea would be postponed indefinitely as the parties to the project had come to the consensus that the costs were exorbitantly high.

Prior to that, the investment agreement had also been postponed several times because of disagreements over the economic model of development for the production of liquefied natural gas.

However Andrei Krivorotov, head of the Corporate Affairs Department at Shtokman Development AG, told Itar-Tass that “the Shtokman project is not dead and it has not been stopped. Both Gazprom as the license holder and potential foreign partners are still interested. It is just that everyone agrees that the project needs to be reorganised and restructured with respect to the new conditions.”

He said that the Shtokman shareholders have come to the conclusion that it is impossible to make the final decision on the project now due to serious changes that have occurred in the global gas market over the past several years.

The unique technical nature of the Shtokman project, its scale, together with the need to spread the project risks - all this created a need to combine the financial and engineering strength of some of the world's biggest oil and gas corporations.

Phase One of the Shtokman Project is being implemented by Shtokman Development AG, a company established in February 2008. The plan for Phase One is to produce 23.7 billion cubic metres of natural gas per year.

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