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Russia's Gazprom shelves Shtokman LNG project ‘until better times’

07 Sep 2012 18:53:33 | glm

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Gazprom's much-delayed final investment decision (FID) on the Shtokman LNG project in the Barents Sea has been shelved indefinitely, the Russian major told ICIS on 29 August, saying it was waiting for "better times" before making the decision.

Vsevolod Cherepanov, Gazprom's board manager responsible for production, said the partners in the project had agreed that its costs are too high for it to be realised in its present form. The partners are now gathering new information relating to the project.

The Shtokman field has estimated reserves of 3.9 trillion cubic metres (Tm³).

Gazprom told ICIS its production priorities now are the Yamal Peninsula, eastern Siberia, the Russian Far East and the Russian continental shelf.

The shelving of the Shtokman development came as no surprise after the withdrawal of Norway's Statoil from its 24% participation in the project's consortium earlier in August. As well as Statoil, the Shtokman development consortium had comprised Gazprom at 51% and France's Total, at 25%.

The project had been subject to several delays brought about by an uncertain investment climate for new Atlantic basin liquefaction projects in light of the boom in US unconventional gas production.

This, coupled with questions about the price competitiveness of the project and about European demand, had prompted the partners to reconfigure Shtokman towards LNG alone and to exclude piped gas.

Denis Borisov, chief oil and gas analyst at Nomos Bank, said that, in the current situation, it made sense for Gazprom to further delay the Shtokman FID, not only to lower its financial risk but also to reduce its expenditure from 2011-2014, a time of high investment burden for the company.

In April this year, Gazprom and the Russian independent NOVATEK signed a memorandum of understanding for future cooperation on LNG production at Yamal LNG. That project is based around the Tambey fields on the Yamal Peninsula, with estimated gas reserves of 1.56Tm³.

At Gazprom's annual general meeting in June, CEO Alexey Miller said the company would begin its involvement in Yamal LNG only after Shtokman was under way.

Shift to Sakhalin

Gazprom declined to comment on what specific projects it would prioritise after the shelving of Shtokman, particularly regarding LNG. However, it has previously indicated that it will seek to shift its focus to target LNG sales in Asia and is anticipating taking a preliminary financial decision on a third 5mtpa expansion train at the Sakhalin-2 export project by the end of the year.

The Russian company, in partnership with a consortium of four Japanese companies, is also expected to complete a feasibility study on a planned 10mtpa export facility in Vladivostok in the Russian far east by the end of the year. That study could be the catalyst for developing the vast untapped Chayandinskoye field in Yakutia or Gazprom's Kovytka field in Irkutsk. The Sakhalin-2 project does not have sufficient reserves to support a third expansion train but Gazprom has started production from one well in the Kirinsky field in its Sakhalin-3 block, with a second planned to flow by the end of the year.

The company plans to pipe most of the volumes from Sakhalin-3 through the newly commissioned Sakhalin-Khabarovsk-Vladivostok pipeline, which theoretically could also support the planned two-train export facility at Vladivostok. But, with an estimated reserve base of 162.5 billion cubic metres at Sakhalin-3, some volumes could also be used to underpin the third 5mtpa train at the nearby Sakhalin-2 plant.

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