Gazprom to develop Shtokman alone, pipe gas to Europe

Judy Clark
Senior Associate Editor

Nina Rach
Drilling Editor

HOUSTON, Oct. 10 -- In a surprise move, Russia's OAO Gazprom announced on Oct. 9 that it will develop giant Shtokman (Shtokmanovskoye) natural gas-condensate field in the Barents Sea without foreign partners and will pipe the gas to Europe rather than convert it to LNG for North American markets as had been planned.

In a television broadcast followed by a written statement, Gazprom Chief Executive Alexei Miller cited a number of factors for the decisions.

"The foreign companies were unable to provide the capital required," he said. "Foreign companies could not offer us assets that corresponded in size and quality with the reserves of the Shtokman field."

Miller added that foreign companies would be considered "only as contractors" for the project.

The announcement stunned international companies vying for a 49% interest in the project. Many of them have been working in the field with Gazprom under short-term contracts for more than 15 years (OGJ, Sept. 4, 2006, p. 70).

Hydro Pres. Morten Ruud had said earlier that Gazprom would probably select several companies from the group of companies bidding. "Even for Gazprom, the Shtokman development requires such huge investment there is need for several partners," he said. Development of the field is expected to cost $10-20 billion.

Miller earlier this year said Gazprom would set up a consortium with two or three of the five short-listed companies bidding on the project: Total SA, ConocoPhillips, Chevron Corp., Statoil ASA, and Norsk Hydro Oil & Energy. The Norwegian companies had been considered front-runners because of their experience in the Barents Sea. Hydro participated with Gazprom in drilling the fourth Shtokman appraisal well and is providing the rig for the seventh well, and Statoil is developing fields in the western Barents Sea.

Russian Energy and Industry Minister Viktor Khristenko in mid-July said the foreign partners could be announced in October.

"Today's announcement by Gazprom was not expected," Statoil said in a statement. "We are confident that Statoil is a good partner for Russia in realizing the Barents Sea potential. Statoil is still committed to a long-term presence in Russia and will continue to pursue business opportunities there."

Politics at play?
Energy analysts venture that politics influenced the decision to shut out foreign companies. Russia's President Vladimir Putin wants to retain as much control as possible over Russia's energy resources and revenues to give the country a new source of wealth and power.

Russia used its leverage last winter when it cut off gas to Ukraine—and consequently to parts of Europe—in a successful attempt to double the price of gas to Ukraine (OGJ, Mar. 20, 2006, p. 57). The incident followed a similar crisis in 2004 between Russia and Belarus. This month Gazprom threatened to cut gas exports to Bosnia unless Bosnia begins to pay a $105 million debt amassed over 1992-95 (OGJ, Sept. 4, 2006, Newsletter).

The Kremlin also takes issue with what it considers interference by the US in Russia's attempt to join the World Trade Organization. US President George W. Bush publicly chastised Putin for what Bush termed backsliding on human rights and democracy issues, an encounter that generated a hot response from Putin and a cooling of relations between the countries.

In addition, Putin is said to be exasperated by Washington's warm relationship with Russia's ex-Soviet neighbor Georgia, which is seeking membership in the North Atlantic Treaty Organization. Russia has imposed sanctions on Georgia for alleged spying.

That background, along with the recent curtailing of Royal Dutch Shell's work on Sakhalin II for "environmental infringements," also leaves analysts wondering about the role of politics in Gazprom's decision to deliver gas to Europe via pipeline rather than as LNG to North America.

Europe to receive gas
Miller, however, said that Europe, Gazprom's traditional export customer, was the company's first priority. It has been providing gas to Europe for more than 30 years, and European gas demand is expected to grow about 2%/year, according to the International Energy Agency.

In 2005 Gazprom sold 156.1 billion cu m of gas in Europe, more than a quarter of European gas supply, Miller said in the company's 2005 annual report. That is about 2.9 billion cu m more than it provided in 2004. With European production declining, members of the European Union will import as much as 75% of their natural gas in 2015, compared with 57% in 2005, IEA said.

Russia has the gas. The Russian part of the Barents Sea is estimated to contain about 22 billion boe (OGJ, June 13, 2005, p. 45). Shtokman, one of the largest gas fields in the world, lies 555 km east of Murmansk in 350 m of water (see map, OGJ, Sept. 4, 2006, p. 70). In January, the Russian Federation Nature Ministry's State Commission for Mineral Reserves estimated Shtokman reserves at 3.7 trillion cu m of natural gas and more than 31 million tonnes of condensate. The hydrocarbons are in four main reservoirs at depths of 1,900-2,300 m.

Gazprom expects to begin production from Shtokman in 2010. The gas initially will be piped from the field to the Russian coast and then under the Baltic Sea from Russia to Germany through the proposed 1,200 km Nord Stream pipeline, formerly called the North European Gas Pipeline. Nord Stream, based in Zug, Switzerland, is a consortium of Gazprom, with 51% interest, and subsidiaries of Germany's BASF AG and E.ON AG, 24.5% each.

Construction began Dec. 9 on the 917 km, 56-in. onshore portion at Babayevo, Russia, 800 km east of St. Petersburg, Gazprom said (OGJ, Dec. 19, 2005, Newsletter). It will connect existing pipelines from Siberian gas fields to the planned Nord Stream transmission line. The onshore system will include seven compressor stations delivering an operating pressure of 100 bar.

Original plans also called for an LNG liquefaction plant near St. Petersburg.

Wingas and E.ON Ruhrgas will build two onshore connections totaling 850 km from Geifswald to the south and west of Germany. From Germany the gas can be transported to Denmark, the Netherlands, Belgium, the UK, and France, with a possible new pipeline spur to Sweden.

Intec Engineering has completed work preliminary to front-end engineering and design on the subsea line, which will be 48-in. in diameter with a 6-in. concrete coating for a total of 60-in. diameter. It will have an operating pressure of 210 bar. Pipeline operations are scheduled to begin in 2010 with an initial capacity of 27.5 billion cu m/year. Capacity could be doubled with a parallel second line to be built in Phase 2 (OGJ Online, Sept. 21, 2005). The subsea line will need no compression stations in the Baltic, Nord Stream said.

Total capital expenditure for the offshore part of the project, if both pipelines are built, would exceed €4 billion to be financed 100% by Gazprom.

The Nord Stream project received the European Commission's Trans European Network (TEN-E) designation in 2000 as a priority energy project contributing to ensuring safe and reliable supplies for Europe.

Contact Judy Clark at or Nina Rach at

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