RUSSIA: Gazprom, Total sign deal to develop Shtokman gas field

Russia's Gazprom and France's Total sign deal in Moscow to develop the giant Shtokman gas field in the Barents Sea. Gazprom and Total signed a deal on Friday (July 13) to develop the giant Shtokman gas field, sealing a Franco-Russian energy partnership brokered at the highest political level. The framework agreement to develop phase one of Shtokman, a field big enough to supply the world for over a year, stretches over 25 years and will cost 15 billion U.S. dollars. Work will start this month to start production in 2013 at Shtokman, which lies under the iceberg-strewn waters of the Barents Sea and poses perhaps the greatest technical challenge of any energy project in the world today. The deal was struck after a phone call this week between President Vladimir Putin and his newly-elected counterpart Nicolas Sarkozy, after diplomats say the two hit it off at last month's Group of Eight summit in Germany. Putin has played Shtokman as a trump card in his relations with the West, dashing the hopes of foreign partners of getting equity in the field as relations with the United States turned chilly last year. Shtokman had been earmarked to supply the North American market with tanker-shipped liquefied natural gas (LNG), but the Kremlin has added an export pipeline to tie the project into European markets. The deal is likely to help Sarkozy cement his relationship with Putin, and could mean the Kremlin, wary of allowing foreign capital into its energy sector, will look with favour on Total when it is doling out future contracts elsewhere. Gazprom's announcement of the deal on Thursday appeared to catch Total by surprise, however, suggesting the French oil major may not be that happy with the terms under which it is being brought into the project. Total will gain a 25 percent stake in a special purpose vehicle that will operate the field and own its infrastructure, the two companies said. But Gazprom will retain outright ownership over Shtokman licence holder Sevmorneftegaz, control the field's production and all marketing rights. Pipeline supplies are due to come onstream in 2013, with LNG production starting in 2014. Phase one of the project foresees annual production of 23.7 billion cubic metres per year. "We are talking about the first stage of the project, which will be implemented in 2013. Beginning from 2014, we will be able to provide deliveries of Liquified Natural Gas (LNG) within the framework of the first phase of the project," said Gazprom Deputy CEO Alexander Ananenkov, who stood in at the ceremony for CEO Alexei Miller, in hospital with a kidney ailment. Despite the terms, Total CEO Christophe de Margerie said the company would be able to book reserves from the project. "Certainly it is not the most important issue, it's a technicality, but yes, we can book reserves, as far as we are taking risks, and when you take risks, you can book your reserves," de Margerie told reporters after the signing ceremony at Gazprom headquarters in Moscow. State-controlled Gazprom, the world's largest gas company and supplier of a quarter of Europe's needs, said Norwegian and U.S. contenders needed to improve their offers to come on board. Gazprom will retain a 51 percent stake in the SPV. Norway's Statoil and Norsk Hydro, and U.S. ConocoPhillips, are in talks to join the project. Chevron has dropped out. It was not immediately clear how great the reserves would be from the first phase of Shtokman. The field has total reserves of over 3.7 trillion cubic metres, and will be developed in four phases. Total said in a statement that the deal commits it only to a study phase, but not to any investments.

ITN Source | July 13, 2007

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