Snøhvit development costs rise; project remains viable

By OGJ editors

HOUSTON, Dec. 17 -- Costs associated with development of the Snøhvit LNG project in the Barents Sea and onshore Norway have increased by 5.8 billion kroner, reported Statoil ASA, operator for the Snøhvit consortium. Costs have risen to 45.3 billion kroner, up from 39.5 billion kroner ($5.3 billion).

However the project remains satisfactorily profitable for the group, Statoil said, and remains viable, assuming a natural gas price corresponding to an oil price of $14.50/bbl (in 2000 money) over the life of the field's production.

Snøhvit, the first LNG development planned in Europe, involves the use of innovative technology and large, complex facilities. Natural gas from Snøhvit, Askeladd, and Albatross fields off northern Norway will be piped through a 160 km multiphase pipeline to Melkøya, an island at the entrance of the shipping channel into Hammerfest, Norway, where the LNG liquefaction plant is being constructed. As many as 21 wells are expected to produce a total of 5.75 billion cu m/year of LNG (OGJ, Nov. 25, 2002, p. 38).

Statoil Chief Executive Olav Fjell said the company has conducted a detailed review of the project. "That work has reduced uncertainty over costs and project execution, giving us now a good basis for implementing the development in accordance with updated plans."

Following the review, Statoil said, it strengthened supervision of construction on the plant, which began this fall, focusing on both its own organization and that of the main contractor, Germany's Linde AG.

"The main reason for the cost increase is that the plant's capacity was increased by 30% at an early stage," says Snøhvit Project Director Egil Gjesteland. "At the same time, the consequences of such an expansion in a large gas liquefaction facility were underestimated."

In addition, "discussions with the Efta Surveillance Authority over the tax regime" for the project delayed the start of construction, Statoil said, which added more to the costs.

The cost increase corresponds to a nominal value of 0.04 kroner/share for the eight-member consortium after taxes, the company said. Statoil holds a 22.29% interest in the project.

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