Gazprom welcomes Total back to Shtokman field

French Oil major Total will partner Gazprom in developing Stage One of the Shtokman oil and gas field in the Barents Sea. It marks a turnaround from the gas company's 2006 rejection of foreign partners.

The Shtokman gas field off the Russian coast is estimated to hold as much as 3,000 billion cubic metres of gas. In late 2006, Gazprom said it would go it alone in developing the field, but that changed with Thursday's announcement that French Total will take a 25% stake in the operating company that will finance, build and own infrastructure in the $US 20 MLN project.

“The original act when they actually kicked out all the foreign partners and said, ‘we don’t need them, we’ll go it alone and just ship gas to Europe” was most likely just a negotiation tactic. They really need to develop this LNG field just to take advantage of the way the market is changing and to get themselves optionallity, but since they have the upper-hand in the relationship – they have the reserves, and foreign companies do not – I think they had to show a strong hand, kick them out and then negotiate more effectively on the economics of bringing people into the project," says Ron Smith, Alfa-Bank Head of Research.

Total's involvement reflects its expertise in similar projects. The Barents Sea project is technologically difficult, being a long way from land in waters beset by icebergs. Gazprom is leaving open the possibility of more foreign involvement, possibly with Norway's Statoil or Norsk Hydro.

“Total’s competitive advantage is its experience in developing similar fields. It’s likely that Norwegian companies will also participate in the project, because they have expertise in developing shelf deposits in difficult climate conditions,” suggests Timur Hairulin, analyst from Antanta Capital.

Gazprom is making it clear that it will retain at least 51% of the project. But its decision breaks a logjam on foreign participation that had held up development of the field, which holds enough reserves to supply Europe for more than three years.

“I would think that the development will go forward. Of course initially there will be feasibility studies and things that aren’t visible in terms of construction, but they’ll also be trying to line up contractors and things like that. The wold market of contractors in the oil field is very tight at the moment, so you’d better have a long lead time if you want something done,” comments Alfa-Bank’s Ron Smith.

Gazprom plans initial production of 23.7 billion cubic meters of gas a year at Shtokman, with first pipeline deliveries in 2013. It’s likely to be a key to meeting surging demand, after the International Energy Agency said earlier this week the world is facing an energy supply crunch in the period after 2010.