IHS World Markets Energy Perspective | |
Significance | Pyotr Sadovnik, deputy head of the Russian Natural Resource Ministry's Subsoil Agency (Rosnedra), said yesterday that Russia could delay the launch of the 3.8-tcm Shtokman gas field until 2018, two years later than currently planned. |
Implications | The Shtokman Development Company, the Gazprom-led consortium that is undertaking the project to extract and export gas from the offshore Arctic field, thus far has insisted that the 2016 timeline for initial pipeline gas deliveries is still applicable, although the schedule for a March 2011 final investment decision (FID) on the pipeline looks likely to be put back. |
Outlook | With the ongoing shale gas boom in the United States and European gas demand recovering slower than expected, the launch of gas production from Shtokman continues to be delayed, prompting the question of just when "market conditions" will ever be right for bringing the giant Arctic field onstream. |
Another Delay Likely
The great promise of Russia's Shtokman gas field, with its 3.8 tcm of proven gas reserves, has long been a source of comfort in some respects for both Russia and Europe, as plans for the development of the mammoth offshore Arctic field have—for the past 20 years—generated a certain level of confidence that Russia can meet Europe's growing gas import needs. Up until the past five years or so, the biggest concern in Europe was not about whether Russia had sufficient gas to meet the continent's rising consumption requirements, but whether Gazprom, the Russian gas monopoly, was willing and able to invest in the development of Shtokman fast enough to ensure sufficient gas supplies for Europe.
In recent years, however, Europe's energy security concerns regarding Russia have shifted to ensuring not more gas imports but simply stable deliveries, as the continent was jolted by disruptions in Russian gas imports as Gazprom engaged in bitter disputes with its main transit states, Ukraine and Belarus. Moreover, the eruption of the global financial crisis in 2008 and the ensuing economic downturn flipped the European gas market on its head, leaving Gazprom in the position of trying to manage away the oversupply in the market rather than bring new volumes onstream. The Shtokman gas field—development of which was already pushed back from an original timetable for launch in 2010 to 2013—has become the security blanket that European gas consumers no longer need in today's market environment.
Thus, in February 2010, Gazprom yielded to market realities, announcing another three-year delay in the timetable for Shtokman, pushing back the planned start-up of pipeline gas to 2016 (from 2013) and LNG production to 2017 (from 2014). That delay was seen as a sensible response to the still-weak recovery in European gas demand in the wake of the demand destruction that occurred with the global economic downturn, as well as a reaction to the shale gas boom that was and continues to unfold in North America (see "Related Articles"). Gazprom and its partners in the Shtokman Development Company, France's Total and Norway's Statoil, subsequently insisted that a final investment decision (FID) for the challenging, multi-billion-dollar project would be made this year after pushing back a previous timetable for an FID by the end of 2010.
Will Shtokman Ever Come Onstream?
Total officials repeatedly pushed Gazprom, which holds 51% of the development company, to stick to the 2011 schedule for an FID, despite signs of disagreements between the partners over project design and continued concern over the weak recovery in European gas demand. Yesterday, Pyotr Sadovnik, deputy head of Russia's Natural Resource Ministry's Subsoil Agency (Rosnedra), strongly hinted that the project is likely to be delayed yet again. "There are discussions on [possible] delay to 2018, although there is no final decision yet", Sadovnik told the Federation Council, the upper house of Russia's parliament, at a roundtable government meeting. "This situation has arisen because the United States is actively using shale gas and demand for gas is falling accordingly", Sadovnik said, according to a Dow Jones report.
Gazprom and its Shtokman partners have not confirmed any delay, however, and Sadovnik's candid remarks on the impact of unconventional gas production in the US and its effect on Russia's gas export market is certainly out of character with Russian officialdom. Sure enough, Gazprom officials responded to Sadovnik's remarks, saying that the company sees no threat from the US shale gas revolution, while an official from the Shtokman Development Company told Platts that the consortium "has not applied to Rosnedra with a proposal to delay the timeframes for the launch of the Shtokman field," adding "We are on track with the schedule approved by shareholders and the earlier announced time frames have not been changed."
Nevertheless, Sadovnik's comments appear to have struck a chord, given the repeated delays to the Shtokman timetable, and the growing unlikelihood that the project partners can actually launch phase one—which aims to produce 23.7 bcm of gas and 7.5 million tonnes of LNG per year—by the current 2016–17 timetable. Irrespective of the forecast for European and North American gas demand by then (which remains clouded by the twin variables of European gas consumption and North American gas exports) financing the development of Shtokman in its first phase remains a question mark, particularly as cost estimates of USD15 billion continue to increase. Andre Goffart, vice-president of Shtokman Development and also Total's vice president for exploration and development, said that "the project is a bit expensive to our taste" according to a Dow Jones report.
Furthermore, Goffart suggested that the consortium is not in total agreement on project design, which could put back the timetable yet again. The original plan to ship natural gas and condensate from the production site 550 km offshore was to send it via two undersea pipelines, then separate the gas and condensate onshore, but Gazprom last year proposed an alternative, less costly option that would allow for separation via a floating vessel at the production site, then ship gas and condensate to shore via two different pipelines. Goffart said that the consortium had already received bids from contractors for the original design, but if Gazprom's proposal was accepted instead, this would require a whole new round of soliciting bids—and thus a project delay of at least one year—for the new design.
Outlook and Implications
Taken together, the comments by both Sadovnik and Goffart strongly suggest that a planned March 2011 timetable for the FID on the pipeline project for Shtokman will be pushed back. Assuming this is indeed the case, the planned end-2011 FID for the LNG production component of the project seems quite likely to be postponed as well, at least to 2012. This chain reaction of events would almost certainly entail a further delay to the overall launch of the first phase of the development of the Shtokman project, perhaps to 2018, making Sadovnik's comments yesterday both prophetic and self-fulfilling.
Any confirmed further delays to the Shtokman project will inevitably raise questions about whether Russia and Gazprom are actually serious about bringing the gas field onstream at all. Just as with Kazakhstan's Kashagan oilfield, the repeated delays at Shtokman create the impression that the project is dogged by problems, but while this perception may reflect a partial reality, the other part of that reality is that investment continues to flow into both projects. The launch of oil production from Kashagan—now expected by the end of next year—will surely surprise and confound the naysayers, just as the future commissioning of gas exports from Shtokman—whenever that may be—will serve as a revelation to those that questioned whether the project would ever come to fruition. The seemingly permanent delay to Shtokman is likely to come to an end just as soon as Russian and Gazprom officials make their peace with the fact that they will never be able to create the ideal "market conditions" in which to bring the gas field onstream.
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- Russia-Europe: 9 February 2010 Nord Stream Project Reportedly On Track, Despite Shtokman Delay
- Russia: 8 February 2010: Launch of Russia's Shtokman Gas Field Delayed to 2016
- Russia: 27 January 2010: Gazprom Reviews Marketing Strategy, Forecasts Higher Gas Exports to Europe in 2010
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