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Gazprom, Total and Statoil redefine Shtokman and partnership

Gazprom brings Shtokman back to square one

Shtokman field was discovered in 1988, and is located 550 kilometers offshore northern Russian coast by 340 meters water depth.

The recoverable reserves are estimated to 3.9 trillion cubic meters of natural gas.

The project development is planned in three phases, each one to produce 23.7 billion cubic meter per year.

Until now the working interests in Shtokman are shared between:

 – Gazprom 51%

 – Total 25%

 – Statoil 24%

The capital expenditure were first estimated around $15 billion, then reviewed to $20 billion to reach now to $30-40 billion.

This capital expenditure escalation was especially due to complex option to share production 50/50 between natural gas and LNG requiring heavier process and multiplying infrastructures.

In parallel of these costs issue, the future natural gas market prices in Europe have become a question mark, as a side effect of the natural gas surplus in USA, to guaranty the profitability of the Shtokman project on this base.

On the Asian side the lengthy negotiations between Russia and China about long term natural gas agreement collapsed in May, closing potential escape way for Shtokman natural gass or LNG.

In this context and despite the several hundreds million spent in Shtokman project feasibility study and front end engineering and design (FEED), Gazprom, Total and Statoil had to come to the hard conclusion to stop the actual process and go back to square one of the project. 

Russia to boost oil and gas exploration & production

The election of President Putin may have more impact on Shtokman than one could have assumed.

The Russian economy is more and more depending on oil and gas income revenues.

With 4.3% Growth National Product (GDP) in 2011 and 4% GDP expected in 2012 and 2013, the economical plan envisaged by President Putin can only fly if revenues from oil and gas export can balance the deficit in other sectors.

With most of the actual oil and gas fields in operations being mature and depleting, Russia has urgency in developing new fields.

As a consequence, we could see these last weeks Russia multiplying initiatives:

 – Rosneft multiplying alliances with companies like ExxonMobil, Statoil and ENI to explore Arctic fields

 – Gazprom and PetroChina re-opening discussions on the collapsed discussions on gas price on a new basis of commercial and technical co-operation

 – Gazprom to boost its capital expenditure by 9% in 2012 up to $28 billion

 – Novatek to move ahead with Total on Yamal LNG

 – Gazprom to complete its partnerships round with Japanese investors in Vladivostok LNG

 – Gazprom calling new partners such as Shell or ExxonMobil to investigate new solutions on Shtokman

Gazprom to redesign Shtokman and partnership

Shell and ExxonMobil benefit from their large LNG expertise and experience of the Sakhalin projects in operations for some years now.

They are also well trained to the harsh environment of the Arctic or sub-arctic conditions.

Shell is also actually negotiating the expansion of Sakhalin 2

So Gazprom is investigating how to benefit from Shell and ExxonMobil experiences to redesign Shtokman in a simpler and cheaper way as a 100% LNG project.

Such a co-operation is also expected to speed up the project implementation still planned for completion in 2017.

But Gazprom confirmed to have no intention to reduce its 51% share of the Shtokman Development AG (SDAG), the project operator.

Therefore to let Shell and or ExxonMobil to step in should suppose Total and Statoil to drop partly or totally.

Alexei Miller, CEO of Gazprom said that “negotiations are ongoing”.

In parallel that Gazprom is looking East on Sakhalin to find expertise, Gazprom is also investigating in Asia the long term markets opportunities for the LNG, either through the Russia-China newly re-started negotiations, either with Japan.

But the message is clear, with Putin again on duty, Gazprom has the mandate to speed up Shtokman LNG, the only pending question is with whom from Total, Statoil, Shell, ExxonMobil, in order to start a new FEED on fast track.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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