Nov 28, 2006

Western Companies May Join In Shtokman Gas Project

Itar-Tass -- Nothing will prevent Western companies from participating in the development of the Shtokman field, Gazprom Board Deputy Chairman Alexander Medvedev said.

In an interview with the French newspaper Echos on Monday, Medvedev said Gazprom's recent decision to develop the field on its own was caused by "purely economic reasons."

"We would like our future partners to make an upward revision of potential earnings they can get from this very important field," Medvedev said.

He said Western companies would be allowed to participate in the project as project operators and on shared liabilities terms. "Other approaches are also possible in the development of the Shtokman field," he added.

Medvedev rejected Western criticism of Gazprom's investment programme and said that of 10 billion euros envisaged for 2006 half would be earmarked for 'the development of the company's gas transport and storage infrastructure both in Russia and abroad."

"These investments will grow in the future," he said.

"Given such plans, it is absolutely groundless to accuse Gazprom of allegedly harbouring plans to stop gas supplies to European consumers," Medvedev said. In October, Gazprom CEO Alexei Miller said his company would develop the Shtokman gas field on its own.

Miller said the field would be developed without foreign companies being allowed to put some of its reserves on their books.

According to Miller, all gas from the Shtokman field will be supplied by the North European Gas Pipeline. "The European market is number one for Gazprom," he said, adding that Gazprom would supply 150 billion cubic metres of gas to Europe in 2006.

Gazprom's Executive Board said supplies from the Shtokman gas field to Europe would have supremacy over liquefied gas supplies.

"The Shtokman field will become the resource base for the export of Russian gas to Europe by the Nord Stream pipeline now under construction. Gazprom will develop the field on its own, without foreign partners," the board said in a press release.

Miller said, "Gazprom will be the sole user of the Shtokman field."

"For a long time Gazprom was considering giving a 49-percent stake in the project to foreign partners. However foreign companies could not offer assets corresponding to the volume and quality of the Shtokman reserves. Modern technologies and techniques will be used in the development of the field, including in the production of liquefied gas. To this end, authoritative international companies will be hired as contractors. Compliance with the schedule and cost estimates will be an important condition of these contracts," Miler said.

"This decision is an additional guarantee of reliable supplies of Russian gas to Europe in the long term and proves that the European market is of paramount importance for the company," he said.

The head of the Union of Independent Gas Producers, Nikolai Baranov, said Gazprom's decision to develop the Shtokman gas field on its own is "not energy diktat" but "a natural desire" of the country to use its subsoil resources.

"This decision agrees with the state energy policy because by so doing Russia will develop its subsoil resources on its own," he told Itar-Tass.

He disagreed that Gazprom's decision leads to Russia' energy diktat. "Why should be allow Western companies to develop our subsoil resources if we can do it on our own? And why doesn't anyone speak about diktat when Norway develops the Snow White field alone?" he said.

Baranov said, "The Russian gas company has all necessary technologies to work in the Arctic Sea alone."

"Even if there is some need for additional expertise, Gazprom can hire Western specialists under a work contract," he added.

President Vladimir Putin said later that the Shtokman gas project was not closed to foreign companies.

"We will not bar partners from the field development, the transportation and the production of liquidified natural gas. Yet only Gazprom will be the mineral developer and the owner of these resources," he said.

Putin said Gazprom was considering redirecting part of the resources from the Shtokman field to European markets, adding, "Such a decision of
Gazprom could be made very promptly."

Putin also recalled that German Chancellor Angela Merkel had recently raised in Moscow "the question of re-orientating part of the resources from the Shtokman gas deposit, one of the biggest in northwest Russia, to the European markets".

The president said Russia exported 55 billion cubic metres of gas to Germany a year. The
Shtokman field can give 25-45 billion cubic metres of gas to Germany. Industry and Energy Minister Viktor Khristenko said Gazprom would need advanced technologies and contractors in the development of the Shtokman field.

He believes that the decision on the Shtokman field development should not "frighten off foreign investors. This decision derives from economic interests, as business votes with money."

The gas field is Russia's most ambitious project that offers "unprecedented volumes and possibilities", Khristenko said.

He said the first stage of the project envisaged the extraction of 15 billion cubic metres of gas to bring production eventually to 45 billion cubic.

The first phase of the field's development is estimated to cost 12-14 billion U.S. dollars while the first shipment of Shtokman gas can be supplied to the United States in late 2011 or early 2012. Gas supplies from the Shtokman field may be as big as 70-90 billion cubic metres a year.

Gazprom was choosing a partner out a short list of five companies that included Norwegian Statoil and Hydro, American Conoco Phillips and Chevron, and French Total, but then decided to develop the gas field on its own.

The Shtokman field in the Barents Sea is believed to contain 3,700 billion cubic metres of natural gas and more than 30 million tonnes of gas condensate.


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