Global Insight Perspective | |
Significance | The deal is a major coup for the French group, which had looked an outsider in the race to help exploit the field, but is now propelled into the major league of players selected to help exploit Russian energy resources. |
Implications | Total's involvement, said to have been partially brokered by new French president Nicholas Sarkozy, appears to secure much of Shtokman's gas for Europe's use, indicating rising preference for the European Union (EU) over the United States in Russian energy relations. |
Outlook | Many were sceptical that Gazprom could afford the cost of developing the deepwater Shtokman field and Total's involvement proves this is the case, with the French group likely to be one of at least two companies (including possibly Statoil and Norsk Hydro) called upon to invest heavily in getting gas to market. |
Total Allocated 25% Stake in Shtokman JV
Russia's Gazprom has chosen French oil major Total to help develop the giant Shtokman gas field. The move is the first firm commitment from Gazprom that it is bringing in an outside operator to help share the costs and rewards of developing the giant Barents Sea field that promises to become a key resource for European and North American markets (see Related Articles).
In a statement, Gazprom's chief executive office (CEO) Alexei Miller said that Total would receive 25% of a joint venture (JV) that will be set up to develop the project's first phase, with one or more other foreign companies likely to share an additional 24%. Gazprom will retain at least 51% of the JV, plus total ownership of the development licence and "all of the extracted hydrocarbons," Miller added.
A Total spokesperson in Paris confirmed news of the agreement, saying that the company was "in very advanced discussions" with Gazprom over the details of the partnership. Speaking to Agence France-Presse (AFP), UBS Warburg's head of research Al Breach called the deal "a major victory" for France and all of Europe. "They don't own the reserves, but so what?" he said, adding that the joint company "is the company that has the infrastructure and then will take the profit."
Shtokman to Pipe 23.7 Bcm from 2013, LNG Shipments to Begin 2014
Shtokman, located in the Russian section of the Barents Sea above the Arctic Circle, is one of the world's few known giant gas reserves yet to be tapped. Its estimated 3.7 trillion cubic metres (Tcm) of natural gas is enough to fill total world gas demand for one year.
According to Miller, the project's US$15 billion-US$18 billion first phase will see some 23.7 Bcm extracted for pipeline shipments starting in 2013, with unspecified liquefied natural gas (LNG) shipments due to begin by 2014. Although it still remains coy on where the gas will be sent, earlier comments from Gazprom indicate that it intends to ship part of Shtokman's gas to Western Europe, possibly through the planned Nord Stream pipeline under the Baltic Sea, with the remainder exported as LNG, most likely to the North American market.
Outlook and Implications
The Total deal is a major coup for the French group which had looked an outsider in the race to help exploit the field, but is now propelled into the major league of players selected to help exploit Russian energy resources.
Last October, Gazprom rejected its entire short-list of potential foreign partners in the project—U.S. groups Chevron and ConocoPhillips, Total and Norway's Hydro and Statoil—saying it would develop the field alone. However, many believed that the massive costs and technical challenges of the deep-sea field would make it nearly impossible for Gazprom to do so. The company later softened its stance, saying foreign companies could participate as private contractors, but that Gazprom would maintain full ownership of the field.
Incoming French president Nicholas Sarkozy is said to have been at least partly responsible for brokering the Total deal. With French business interests and energy supply security high on his agenda, Sarkozy discussed the involvement of Total in developing Shtokman with Russian president Vladimir Putin when the two met at the G8 Summit last month. Gaz de France (GdF) has also been at pains to build close relations with Gazprom, allowing it to swap cargoes of LNG for piped gas to enable the Russian group to build a presence in the Atlantic Basin LNG market.
Total's selection over U.S. companies could also be a sign that troubled Russian-European Union (EU) energy relations are on the wane. Although the West fears overdependence on Russia, it is under pressure to meet surging demand for natural gas and will want to secure supplies into the next decade, even if a large portion will originate in Russia. Gazprom initially said all of Shtokman's output would be shipped to the United States as LNG, but later indicated that volumes would be shipped to Europe via a planned Russian-German pipeline that will run under the Baltic Sea. The move confirms Russia's rising preference for European rather than U.S. markets for its natural gas, despite ongoing disputes with the EU over its reliability as a supplier.
The apparent losers in the Shtokman deal appear to be Norwegian operators Statoil and Norsk Hydro, due to merge their operations later this year, but it is highly likely that they too will enjoy a slice of the action. Norway and Russia have been discussing designated zones in the Arctic Sea and the way in which cross-border gas and oil reserves will be divided up. In return for cooperating, the Norwegian groups are likely to be rewarded with some interest in the Shtokman development, and perhaps the whole 24% going spare in the JV.
Related Articles
- Russia: 14 June 2007: Gazprom to Announce Shtokman Partners in July, BP Short-listed for Baltic LNG
- Russia: 22 May 2007: Gazprom Increases Shtokman Proven Gas Reserves Following Audit
- Europe-Russia: 20 April 2007: Gazprom Poised to Shortlist Four Firms for Baltic LNG Project
- Russia: 5 April 2007: Gazprom Eyes 2013 Gas Export Start-Up from Shtokman; Potential Contractor List Narrowed
- Russia: 29 January 2007: Gazprom Resumes Talks with Shtokman Bidders as Sub-Contractors, Invites Sonatrach to Join Baltic LNG
- Russia-Norway: 29 November 2006: Russia Confirms Strategic Cooperation as Norway Seeks Barents Sea Division
- Russia: 10 October 2006: Gazprom to Shun Partners, Develop Shtokman as Pipeline Gas for Europe