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Gazprom shelves flagship Shtokman project

The village of Teriberka, 120 kilometres east of Murmansk, had been designated by Gazprom as its first onshore transit point for gas from the massive Shtokman field. Picture taken April 16, 2010.

STAFF/REUTERS

OAO Gazprom is to shelve its flagship project to develop the vast Shtokman gas field in the Arctic sea together with France's Total SA and Norway's Statoil ASA because of surging costs.

A senior official at the Russian gas export monopoly told reporters on Wednesday that excessive costs had made it unfeasible to develop Shtokman, which contains 3.9 trillion cubic metres of gas, more than the entire Norwegian continental shelf, following years of wrangling over investment costs.

"All parties have come to the conclusion that financing is too high to be able to do it for the time being," said Vsevolod Cherepanov, head of Gazprom's production department. "We are collecting new data. We have extensive gas resources. We shouldn't take hasty decisions."

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Gazprom's main spokesman Sergei Kupriyanov told the Financial Times that the decision could be reviewed "only when conditions on the market change: either prices should rise, or costs should go down."

The move to indefinitely postpone the project comes as Gazprom, Russia's biggest company, faces increasing pressure at home and abroad. The group is struggling to compete with the rapid rise of shale gas in the U.S. and a surge in new liquefied natural gas projects, which are sapping demand in Europe, Russia's main market, and pushing prices down.

At home, it is facing increased competition from fast-growing Novatek, the independent gas producer co-owned by Gennady Timchenko, an ally of Vladimir Putin, which won the government's blessing for its own Yamal LNG project to develop liquefied natural gas in the Arctic – apparently taking priority over Gazprom's efforts to develop Shtokman.

Statoil said this month it was writing off $336-million (U.S.) of investment in Shtokman and had handed its shares back to Gazprom. At the time it said it remained in talks to renew an agreement to develop the field in a consortium together with Total, in which it held a 24 per cent stake, Total 25 per cent and Gazprom 51 per cent. The parties had failed to reach agreement on terms for investment in time for a June 30 deadline.

The project has faced years of delays due to disagreement over terms for development of the field, located in treacherously icy waters in the Barents Sea. The initial investment had been estimated at as much as $15-billion.

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