MOSCOW. Aug 30. (Interfax) - Analysts say the decision to delay the Shtokman gas project is economically justified and a positive for Gazprom (RTS: GAZP).

file photoThe Financial Times said the decision was seen by some analysts as a sign of "more pragmatic commercial thinking by Gazprom, widely seen as being traditionally driven by political considerations."

"This is positive," Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies, told the FT. "Finally, someone has blown the whistle and said this isn't going to work and we don't want to spend any more management time or money on this. I wish they'd do this more often," he told the paper.

Mariya Yegikian of Alfa-Bank (RTS: ALFB) told Interfax that the decision to delay Shtokman was the European market could be swamped by LNG from the United States in 2015-2016, just when Shtokman was due to be launched. "Given the significant capex required to put Shtokman on stream and that tax breaks have not been awarded it would not be feasible to carry it out right now," she said.

The decision, she said, was had been expected because investment decisions had been out of several times and reports emerged that Gazprom might be looking to change its foreign partners.

"We share the point of view held by the Shtokman participants that this is a very capital-intensive project and needs further analysis, especially given weak demand for gas in Europe. In our view the project is not economically feasible and would have negatively impacted Gazprom's value if implemented under the current tax regime, without concessions," analysts at VTB Capital said.

At the same time the government has awarded considerable tax relief to another LNG project, NOVATEK's (RTS: NVTK) Yamal LNG project, which the analysts say "gives rise to even more questions."

"We think this is clear confirmation of a selective attitude to NOVATEK at Gazprom's expense. We think that tax breaks and/or changes to the project's configuration towards a less capital intensive structure would be positive to Gazprom," they say.

Frame agreements with the foreign shareholders Total (25%) and Statoil (24%) state that Gazprom is entitled to demand that the partners hand in their shares in operating company Shtokman Development AG if a final investment decision on the project cannot be reached before the agreements lapse. The frame agreements signed in 2008 expired in March this year, but the partners decided to extend them until July 1. Since the shareholders did not think they could achieve the desired rate of return, the decision was made to liquefy not half but almost all of the gas produced, in addition to changing the project's business model.

Statoil has handed its shares back to Gazprom and written off around $340 million of investment, but continues to negotiate the joint development of Shtokman with Gazprom.

A meeting of shareholders in Shtokman Development AG to discuss the possible withdrawal by France's Total from the Shtokman gas project is due to take place on September 4. Total, the first to join the project, has a technical veto and has not yet handed its shares in. A source with knowledge of the situation told Interfax Total was also inclined to remain a Shtokman Development shareholder and might make some offers to Gazprom in order to stay in the project.

Gazprom has stated that there is a possibility of replacing the foreign partners or of a third one - Shell - entering into the fold. Statoil has told Gazprom that it is prepared to stay in the project if Shell is the second foreign partner and has suggested that Gazprom get three-party talks in motion.

Vsevolod Cherepanov, a member of Gazprom's executive board, said on August 29 that "all project participants have concluded that costs are too high to carry the project out at present. We're gathering new data. We have a huge resource base and we don't have to rush into decisions," he said.

Cherepanov also said Gazprom planned to select partners for the Shtokman project within a month and that a final investment decision could not be expected this side of 2014. Gazprom managers have said it could be 2018-2019 before production at Shtokman begins due to the decision to change the project's configuration.

Shtokman Development has been tasked with financing and building infrastructure to deliver Shtokman gas to shore and liquefying it as part of the project's first phase.

The license to the field, with reserves of 3.9 trillion cubic meters of gas, is held by Gazprom subsidiary Gazprom Dobycha Shelf. Gazprom intended to implement the second and third phases independently.

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MOSCOW. Aug 30. (Interfax) - Analysts say the decision to delay the Shtokman gas project is economically justified and a positive for Gazprom (RTS: GAZP).

file photoThe Financial Times said the decision was seen by some analysts as a sign of "more pragmatic commercial thinking by Gazprom, widely seen as being traditionally driven by political considerations."

"This is positive," Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies, told the FT. "Finally, someone has blown the whistle and said this isn't going to work and we don't want to spend any more management time or money on this. I wish they'd do this more often," he told the paper.

Mariya Yegikian of Alfa-Bank (RTS: ALFB) told Interfax that the decision to delay Shtokman was the European market could be swamped by LNG from the United States in 2015-2016, just when Shtokman was due to be launched. "Given the significant capex required to put Shtokman on stream and that tax breaks have not been awarded it would not be feasible to carry it out right now," she said.

The decision, she said, was had been expected because investment decisions had been out of several times and reports emerged that Gazprom might be looking to change its foreign partners.

"We share the point of view held by the Shtokman participants that this is a very capital-intensive project and needs further analysis, especially given weak demand for gas in Europe. In our view the project is not economically feasible and would have negatively impacted Gazprom's value if implemented under the current tax regime, without concessions," analysts at VTB Capital said.

At the same time the government has awarded considerable tax relief to another LNG project, NOVATEK's (RTS: NVTK) Yamal LNG project, which the analysts say "gives rise to even more questions."

"We think this is clear confirmation of a selective attitude to NOVATEK at Gazprom's expense. We think that tax breaks and/or changes to the project's configuration towards a less capital intensive structure would be positive to Gazprom," they say.

Frame agreements with the foreign shareholders Total (25%) and Statoil (24%) state that Gazprom is entitled to demand that the partners hand in their shares in operating company Shtokman Development AG if a final investment decision on the project cannot be reached before the agreements lapse. The frame agreements signed in 2008 expired in March this year, but the partners decided to extend them until July 1. Since the shareholders did not think they could achieve the desired rate of return, the decision was made to liquefy not half but almost all of the gas produced, in addition to changing the project's business model.

Statoil has handed its shares back to Gazprom and written off around $340 million of investment, but continues to negotiate the joint development of Shtokman with Gazprom.

A meeting of shareholders in Shtokman Development AG to discuss the possible withdrawal by France's Total from the Shtokman gas project is due to take place on September 4. Total, the first to join the project, has a technical veto and has not yet handed its shares in. A source with knowledge of the situation told Interfax Total was also inclined to remain a Shtokman Development shareholder and might make some offers to Gazprom in order to stay in the project.

Gazprom has stated that there is a possibility of replacing the foreign partners or of a third one - Shell - entering into the fold. Statoil has told Gazprom that it is prepared to stay in the project if Shell is the second foreign partner and has suggested that Gazprom get three-party talks in motion.

Vsevolod Cherepanov, a member of Gazprom's executive board, said on August 29 that "all project participants have concluded that costs are too high to carry the project out at present. We're gathering new data. We have a huge resource base and we don't have to rush into decisions," he said.

Cherepanov also said Gazprom planned to select partners for the Shtokman project within a month and that a final investment decision could not be expected this side of 2014. Gazprom managers have said it could be 2018-2019 before production at Shtokman begins due to the decision to change the project's configuration.

Shtokman Development has been tasked with financing and building infrastructure to deliver Shtokman gas to shore and liquefying it as part of the project's first phase.

The license to the field, with reserves of 3.9 trillion cubic meters of gas, is held by Gazprom subsidiary Gazprom Dobycha Shelf. Gazprom intended to implement the second and third phases independently.