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Shtokman field not to be developed

June 03, 2013, 11:48 UTC+3

The national gas utility Gazprom has for the first time officially recognized that it won’t be able to do the thing in the next few years

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The history of 25-year-long talk about the development of the Shtokman field seems to have come to a logical end. The national gas utility Gazprom has for the first time officially recognized that it won’t be able to do the thing in the next few years, the Nezavisimaya Gazeta writes. According to Gazprom’s deputy CEO, Andrei Kruglov, it looks like the Shtokman field will stay for the coming generations.

Apparently, a pretext came very handy: the South Kirinskoye field on the Far Eastern island of Sakhalin has practically the same reserves but is located much closer to the markets of the Asia Pacific countries. However, about two billion U.S. dollars have already been invested in the design work and preparation of estimates for the Shtokman field. Now, the fate of these monies will be decided at Gazprom’s next board meeting.

In the mean time, the newspaper reminds that the Shtokman field in the Barents Sea has about four trillion cubic meters of gas of explored reserves and hence ranks as one of the world’s biggest. The gas-bearing structure was discovered in 1981. The first well to a depth of 3,153 meters was drilled in 1988 to reveal two pools of non-associated gas and gas condensate. With an eye of the development of this field, Gazprom and oil major Rosneft set up Sevmorneftegaz Co. in 2002. In 2004, the company was passed over to the gas monopoly entirely. It was merged into Gazprom’s subsidiary Gazprom Neft Shelf. At the initial stage, it was planned to produce 22 billion cubic meters, of which a part was to be used to produce liquefied natural gas. There were plans to export this gas to the United States.

Later, talks began with possible partners - Norway’s Statoil and Hydro, Frances’ Total, U.S. Chevron ConocoPhillips that were turned down by Gazprom in 2006. Gazprom then said it would engage them as contractors. The situation changed in 2007, when Total, which by that time merged with Norway’s StatoilHydro, was again announced a partner. But in August 2012, Gazprom agreed with its partners to temporarily suspend the project because of excessive costs and over new shale gas projects. By December 2012 however Gazprom said the Shtokman project would be resumed. Now, the games around the Shtokman project are apparently over or, at least, postponed for a long time.

The project, mostly oriented towards the U.S. market, turned to be inexpedient because of the production of shale gas in the United States, said Tatiana Mitrova, the head of the department of the development of the oil and gas sector of the Russian Academy of Sciences’ Institute of Energy Studies.

“What Gazprom is saying today is a mere acknowledgement of the fact that Shtokman’s gas would be unacceptable in terms of production costs,” The Nezavisimaya Gazeta cites Mikhail Krutikhin, a partner at RusEnergy consultancy. However, the focus on Sakhalin is unjustified from the economic point of view.

“The South Kirinskoye field has been discovered quite recently, no works have started there,” he said. “It looks like a step made in despair. Gazprom cannot sell as much gas as its CEOs have planned to Europe. So, new markets are needed. They have opted for Asia. But these solutions have poor economic backing. They have built an expensive gas pipeline Sakhalin-Khabarovsk-Vladivostok. Taking into account these expenses, the real cost of the Sakhalin gas in Vladivostok is about 600 U.S. dollars for 1,000 cubic meters. So, the gap between the price and the production cost is covered from the budget, i.e. at the expense of petty taxpayers. And this story can be reproduced again.”

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