A succession of delays

The fate of the Shtokman offshore gas-field construction project is still uncertain.

On the agenda for 05 February’s meeting of Shtokman’s directors – which operates the Arctic project, and is owned by the Russian energy company Gazprom, Total, and Statoil – is an agreement on a new gas-marketing plan for the offshore field.

“Everybody is waiting for this board meeting. The project may be pushed back, and future gas supplies diverted to other markets,” Vladimir Dimitrov, chief technologist for Gazprom’s subsea division, told Bloomberg News in a interview at yesterday’s Norwegian-Russian offshore conference in Tromsø.

Jakub M. Godzimirski, Russia expert, and senior researcher at the Norwegian Institute of International Affairs (NUPI), believes the project’s economic uncertainty is part of the reason for the delays.

“It’s perhaps first and foremost an admission that the partners in the Shtokman scheme have been far too optimistic regarding how technologically challenging this project is,” he says.

Total AS, one of the project’s partners, has already pushed their decision back twice from their first deadline in 2009. According to their director, Arnaud Breuillac, it now looks more likely to be the end of this year.

Economic reasons

What has upset the piggy-bank is competition from rising U.S. shale-gas production; a “game changer”.

Gazprom – the world’s largest gas producer – and its partners had hoped to enter the U.S. market, planning to send up to 90 percent of Shtokman’s liquified natural gas (LNG) to North America.

But competition from shale-oil may mean having to divert their proposed LNG shipments from Shtokman elsewhere, in order to get higher prices.

New technology has suddenly meant that oil companies can recover natural gas from previously unchartered areas for a much lower price.

“Production of shale-gas and reduced demand from industry has sharply reduced gas prices in the USA. It’s obvious that building such a large and complicated project such as Shtokman has become less profitable,” John King, senior analyst at the Eclipse Energy Group in Stavanger tells Stavanger Aftenblad.

“The Russians have a lot of gas contained in land-based gas fields on the Yamal Peninsula that they can built out more cheaply instead. Shtokman is largely designed for LNG ship exports, but if prices in the US remain as low as they are today, Shtokman’s profitability will probably fall sharply,” says King.

And despite Gazprom’s meeting today to discuss Shtokman’s future, the speculation will probably have to continue until the 05 February.