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15 Oct, 2009 18:57

Shtokman partners call for new breaks to improve project viability

Partners in the world’s largest offshore gas project Shtokman say they want new tax breaks to justify development costs, as Shtokman developer Total warns the project will not be profitable at current gas prices.

The head of Shtokman Development signed a 25-year deal to build the project's onshore infrastructure, on Thursday. There's no price tag, as it's still in the planning stage. Gazprom CEO, Aleksey Miller it will soon be available.

“We expect to have the investment plan ready by the first half of next year.”

500km off Russia's far north in Arctic waters, the deposit's the most challenging energy project around. Most equipment isn't available "off the shelf", requiring state-of-the-art conceptual design, according to Yury Komarov, CEO of Shtokman Development AG..

“It's not just one of the most prestigious projects, it's very complicated, and we need to do a lot of work in this region.”

Gazprom says Shtokman can come on tap by 2013. But analysts cry foul. Contractors are still not in place, and it's a difficult time to be raising finance. Gazprom wants the Arctic's vast reserves to be shipped through the port of Murmansk, to the world's largest energy markets Europe and the US. But even project partners question the viability of the development, especially at today's energy prices.

Natural gas prices are at their lowest in decades. French project partner Total last week added Shtokman is not feasible at current rates.

The development's third shareholder, Norway’s StatoilHydro called for tax breaks, to make it worthwhile, according to its Russia Representative Bengt Li Hansen.

“When we are going to make a decision on Shtokman we need favourable tax regimes – more favourable than today.”

Shtokman plans to supply Europe through the Nord Stream pipeline, and later ship LNG to the US. Demand there should grow over the next decade, but not at any price.