#30 - JRL 2009-193 - JRL Home

Moscow News
October 19, 2009
Waiting for Shtokman
By Anna Arutunyan

MURMANSK - For the 1,700 business executives attending the 1st Murmansk Economic Forum, the question was not what to invest in, but when the multi-billion dollar project will get underway.

With 3.2 trillion cubic metres of gas stored deep under the icy Barents Sea, the Shtokman gas field is a cornerstone of Russia's gas policy. Featuring speeches by Foreign Minister Sergei Lavrov, Gazprom President Alexei Miller, Rosneft CEO Sergei Bogdanchikov and other heavyweights (Vladimir Putin cancelled his visit at the last minute, travelling to China to sign a 70 billion cubic metre gas deal) the forum sought to raise confidence in a project that has had its problems since the field's 1988 discovery.

"Development of the Shtokman gas field is the key to Arctic" expansion, Miller told participants.

Once developed, this $20 billion project will yield up to 70 billion cubic meters a year destined for Western Europe via the Nord Stream pipeline, thus securing Russia's position as the chief energy supplier of the continent for decades to come.

With the technology developed to gain access to condensed gas stores 350 metres below the surface of an icy sea, it will pave the way for the development of other Arctic fields, whose gas stores are estimated to be at least 6 trillion cubic metres. Finally, the investment drawn from the project will be a boon for Russia's impoverished northwest regions, like Murmansk.

Regional investment deals signed at the forum, including one to turn Murmansk into an Arctic transportation hub, exceeded $1 billion, and this was the central message that forum organisers sought to get across.

But if Shtokman is the key, it is also a project with many unknowns. Some participants, speaking off the record, conceded that there was a sense of more talk than action, however important that talk was for investor confidence. Top management at Shtokman Development AG (of which Gazprom controls 51 per cent, Total 25 per cent, and Statoil Hydro 24 per cent) skilfully evaded the big question at the forum - when development was actually going to start.

Shtokman Development CEO Yury Komarov explained that the planning stage was complete, and developers had entered the investment stage, with a final investment decision involving all partners to be made in the first half of 2010, with gas production set to begin by 2015.

"The market is prone to change, and investment decisions depend on the market," Komarov told journalists when pressed about potential delays. "But there have been no decisions to change the schedule."

A statement earlier this month by Total CEO Christophe de Margerie that the project might be "uneconomical at today's gas prices" suggested there was further potential for delaying the final investment decision.

"I'm not trying to evade the question, but I will say the same thing, adding that, from the technical point of view, work carried out so far is above all praise," said Total's exploration and production general director for Russia, Pierre Nerguararian. "The project will be realised."

Another question that has hung over the Shtokman field is how far Russia will allow foreign companies to take part in development. Gazprom took Total and Statoil Hydro as partners on the condition that the French and Norwegians would sell their shares back to Gazprom after the end of the project's first phase.

During one panel discussion, Rosneft president Sergei Bogdanchikov said he firmly backed a law passed last year ensuring that only Russian companies would get licenses and controlling shares for oil and gas projects.

Grigory Straty, head of the Murmansk Shelf Association, which provides infrastructure related to Shtokman, said the project was "[not] affected by this in any way, everyone is happy with the way things are working. Of course, in general the foreigners were a little upset, maybe they wanted to hear something else. But I can't speak for them. I support this decision, because it will allow us to get new technologies."

For participants hoping for a piece of the Shtokman pie, the forum was primarily a venue to get to know each other. Speaking off the record one manager at a local energy company said he had little idea how exactly such a difficult project would be implemented. "It's too far out in the sea. 600 km is too much." But he said he was able to reach a few preliminary agreements on future deals.

"I got a sense that [the forum] was mostly about asking for money," said another US participant.

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