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One of the most high-profile Gazprom projects is frozen

August 30, 2012, 12:00 UTC+3

The Russian gas giant Gazprom acknowledged that the Shtokman gas project in the Barents Sea is delayed for an indefinite period of time

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MOSCOW, August 30 (Itar-Tass) — The Russian gas giant Gazprom acknowledged that the Shtokman gas project in the Barents Sea is delayed for an indefinite period of time. Currently the implementation of the project is impossible, member of the Gazprom board Vsevolod Cherepanov said. The company stated officially that the expenses for the project are too high for it. The analysts believe that the Shtokman gas pipeline will be commissioned, but not soon.

Gazprom agreed with Norway’s Statoil and France’s Total that the Shtokman gas project should be suspended, the RBC daily reported. “All negotiating parties came to agreement that the expenses are too high so that we could do it now,” member of the Gazprom board Vsevolod Cherepanov said at a gas industrial conference in Norway. “We have major gas reserves...We should not take hasty decisions,” he said. Cherepanov added that the final investment solution on the first phase of the Shtokman gas project will not be taken before 2014. According to him, the project is restrained in technical terms that it is still unclear what gas liquefaction technology is suitable for the Arctic, and what equipment to use – surface or underwater equipment.

Statoil spokesman Bard Glad Pedersen told the RBC daily that the company still hopes to implement the gas project and continues to negotiate with Gazprom. “For Shtokman to be commercially efficient, we should conclude a framework agreement with new deadlines and conditions,” he said. Chairman of the Gazprom board Jannik Lindbaek earlier explained that Statoil decided not to extend the current agreements for the first phase to develop the Shtokman gas project. The Norwegian partner formally quitted the project, writing off 335 million dollars of investments. The British-Dutch company Shell and the US company ExxonMobil also stated about their intentions to participate in the gas project.

The newspaper recalled that the Shtokman gas field in the Barents Sea is one of the largest in the world. The prospected reserves make about 3.8 trillion cubic metres of natural gas and about 37 million tonnes of gas condensate. The Shtokman gas field was discovered in 1988. Gazprom has been seeking to launch its development for about ten years.

Gazprom spokesman Sergei Kupriyanov told the Vedomosti daily that the gas concern is negotiating with potentially probable participants in the gas project, the Swiss company Shtokman Development AG, which was established in 2008 to develop the gas project, continues to operate as a legal entity. Cherepanov told Bloomberg that Gazprom is planning to select partners anew within a month with Shell as a candidate. Still, the final investment solution is expected not earlier than in 2014.

Cherepanov’s statement on too high expenses shows that Shtokman is frozen for an indefinite period of time, Ear European Gas Analysis Director Mikhail Korchemkin and Nomos-bank analyst Denis Borisov stated. The project should be suspended, this was obvious back in 2009, Korchemkin believes. The main Gazprom problem that is excessive gas supplies in the United States and on the European market emerged not yesterday. Now with due account of the gas market situation and the plans of the US and other gas producers expensive raw materials from the Shtokman gas field will be needed not earlier than in 2020, Borisov said with confidence. Korchemkin’s forecast is 2025. But all depends from the market, the experts noted.

The Kommersant daily quoted Viktor Markov from the Capital Asset Management Company as saying that the development of the Shtokman gas field will resume “not earlier than in 2-3 years after the stabilization of the price situation on the gas market.” He noted that the gas prices have had a downturn tendency since 2008, “but the floor level is not seen yet.” In this situation Gazprom does not want to take a risk, particularly in view of the European financial crisis and the unstable situation on the world markets, therefore, the Russian gas major delayed the launch of the Shtokman gas project for a so long period of time.

The news report did not come as a surprise after Statoil passed its share to Gazprom two weeks before, the Rossiiskaya Gazeta daily cited director of the Investcafe analytical department Grigory Birg as saying. This fact became the first obvious indicator that the development of the Shtokman gas field will be postponed for an indefinite period of time, he noted. Meanwhile, Total has a more promising project in the Yamal-Nenets autonomous area. The participation right in two projects with high costs is difficult, the analyst believes. The cost of the Shtokman development may exceed 40 billion dollars according to various estimates. The sales market was not determined yet, Berg explained. This is very risky with such high expenses.

It was planned initially that only a small part of gas supplies will be made along the pipeline, but the bulk of liquefied gas supplies will be made to the United States, he noted. But the US can become a gas exporter within next ten years. In the future Shtokman can supply gas to the markets in Europe, Great Britain and probably Asia. But it is not very needed now, as the gas consumption in Europe is on the decline, Birg said. Meanwhile, Russia has major capacities as the second line of the Nord Stream gas project, Belarusian and Ukrainian pipelines. It is quite cheaper to implement other projects.

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