Shtokman Development AG Changes Gears … Again – Russia

The Shtokman project is currently under the direction of the aggregated Shtokman Development AG (SDAG), jointly owned by France’s Total (24%), Norway’s Statoil (25%), and Russia’s Gazprom (51%).  SDAG would have a 25 year license to explore, and operate the Shtokman Field (Штокмановское Месторождение) located within the Russian EEZ in the Barents Sea holding approximately 3.8 trillion cubic meters of natural gas and 37 million tons of gas condensate.

New information has surfaced lending to a scrapping of original project plans, and a stronger focus on LNG sea shipments.  This all likely in light of recent European turmoil, budgetary constraints, recent demand issues that stem from Ukraine, and a European movement to diversify away from Russian oil and gas.  I have done my best to highlight the old plan along with the potential new.

Shtokman Field - Russia - Barents Sea

Original Plan

  • Shtokman Field – Gas and gas condensate will be extracted from subsea wells and separated on board a floating production unit deemed to be one of the largest that will have been built.  Gas and gas condensate will then be transported to the city of Teriberka (read  The Economic Implications for Teriberka for more info) via two subsea pipelines.
  • LNG to be Shipped – From Teriberka, gas will be converted to Liquid Natural Gas (LNG) by means of a LNG Plant.  LNG will then be shipped out to markets by means of LNG tankers.
  • Gas to be Piped to Europe – Gas condensate will be treated at the onshore Gas Treatment Unit (GTU) with the resultant gas being forwarded through on to Vyborg (Russia), along the way being compressed by several compressor stations.  From there, gas will be sold to Europe by way of the Nord Stream pipeline, currently partially operational, that connects Vyborg and Greifswald (Germany).

New Developments

Industry experts have said the following concerning recent Shtokman developments;

“Shareholders are considering to scrap plans to pipe gas to Europe and to focus instead on liquifying the entire gas output to ship to global markets on tankers” – Alexander Medvedev, Deputy Chief Executive of Gazprom

“Everything is on the table now, even the possibility of Gazprom working with other foreign partners or maybe continuing the project on its own” – Industry Expert

“(Shifting to LNG) is just one of the options under discussion,” – Shtokman spokesman

EPC Engineer – Sthokman Overhaul Could Mean More LNG, New Partners

Briefly – Essentially, the “Gas to be Piped to Europe” is what would be scrapped, while the “LNG to be Shipped” would double.  This would have effects that would include but would not be limited to an increased demand for nuclear-icebreaker and LNG tanker production,  an incentive to improve current Arctic Ocean / Northern Sea Route monitoring / search-and-rescue capabilities, and a potential increase in the average cost to export each btu (not to mention CO2 / btu) of gas due to tanker-fuel requirements.

What is important, is that both Total and Statoil seem still to be committed to the project.  Albeit existing delays, a back-out from either of these massive partners would launch Gazprom into the search for new sources of funding.

Tapping Into Asian Markets – At first glance the move makes complete sense.  Original plans only stood the potential to sell a portion of production to Asia.  This new focus can be taken as a descent means to diversify into hungry Asian markets.  If the Asia of the future holds less-than-expected demand, the LNG tanker infrastructure enables sales to other growing regions as well.  Russia’s far-eastern, Sea of Okhotsk, operations are currently ill-positioned to gain from growing Asian demand, albeit a descent LNG production and shipment infrastructure, as forward contracts have mostly all been established at current production levels (Read Sakhalin Offshore Oil and Gas Reserves).  SDAG would be able to sell new LNG production on forward markets at today’s relatively higher prices.  *For our North American readers remember that our natural gas prices are low relative to those of world markets as Canada is severely handicapped in it’s ability to export LNG by sea (lessening competitive market forces), and new technologies have made available many new reserves and resources within both Canada and the United States.

 A Hedge Against Europe – It is quite clear that SDAG stands to gain from a hedge against sliding European demand for Russian oil and gas which could in turn affect Russia’s ability to control prices.  As a world leader in oil and gas exports, this potential decrease in European demand could force other Russian oil and gas producing regions to find customers elsewhere.  What can be said, however, is that it takes massive infrastructure spending plagued with time lags to get oil and gas to markets via land.  The sooner that Russia has the pipeline infrastructure built to connect with more of it’s southern (mostly) and western neighbours, the smaller the chance that price contracts will be held at lower prices due to ‘ability-to-deliver’ constraints.

Previous Posts
Arctic Economics has made several posts related to the Russian Shtokman project throughout the past year;
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Nickel Mining in Russia – Norilsk Nickel & Amur Minerals

Russian Nickel Reserves and Production Map with EEZ

World Nickel Reserves and Production in 2011

Reserves – World nickel reserves, according to the latest data by the USGS, amount to 80,000,000 mt.  From the chart on the right, one can see that Russia holds currently 7% of the world’s nickel reserves amounting to 6,000,000 mt, coming in fourth place after Australia, New Caledonia, and Brazil.

Production – World nickel production in 2011 amounted to 1,800,000 mt.  From the chart on the left one can see that Russia produced 16% of the world’s nickel production at 280,000 mt.  All of the nickel producing countries increased production from 2010 to 2011.  Canada, for instance, increased their production by 26% from 158,000 to 200,000 mt, whereas Russia only increased production by 7% from 269,000 to 280,000 mt.

Russian Nickel Reserves and Production – 2010

Norilsk Nickel – Of the 269,000 mt of Russian nickel production in 2010, Norilsk Nickel Russian operations were responsible for 88% at 236,000 mt.  Norilsk Nickel is currently Russia’s largest mining company, operating Nickel mines at both their Kola MMC and Polar Division (of the Taymyr Peninsula) locations.  Russian enterprises received an average price of 21,997 USD per tonne of nickel in 2010 compared with only 15,853 USD per tonne in 2009.

Norilsk Nickel Polar Division Map – http://www.nornik.ru/_upload/editor_img/file0181.jpg

  • Polar Division – Within the Russian Taymyr Peninsula, the Polar Division oversees three nickel-copper-sulfide ore deposites that are currently being mined.  These consists of the Oktyabrsky, Talnakh, and Norilsk-1 deposits.  Talnakh deposits are considered to be of the largest in the world.  Proven and probable nickel reserves amount to 4,700,000 tonnes.  Nickel production in 2010 amounted to 124,200 tonnes or 46% of total Russian nickel production.

Port Dudinka – The Polar Division relies almost entirely on the Yenisey River to export production to the rest of the world via Port Dudinka (shown in above map) and then via the Northern Sea Route (read more).  Norilsk’s Polar Division thus shipped 124,200 tonnes of the worlds nickel production (8.7%) through the port in 2010.  The port closes for only one month each year, during the ice thaw that occurs through May to June.  During the winter months, icebreakers are used to clear the Yenisei River that links port Dudinka with port Dikson, and thus the Northern Sea Route.  Icebreaker-like cargo ships are used as well that do not usually require any assistance from standard icebreakers.

  • Kola MMC – Within the Russian Kola Peninsula, the Kola MMC division oversees the mining of the Zhdanovskoe, Zapolyarnoe, and Kotselvaara and Semiletka deposits.  Nickel reserves amount to 1,400,000 tonnes.  Nickel production in 2010 amounted to 111,300 tonnes or 41% of total Russian nickel production.  The Kola MMC division is fully integrated into the well-developed regional transport infrastructure.

Amur Minerals (updated – July, 2012) – With operations in Russia, the firm operates and is exploring the Kun-Manie nickel-copper-sulphide ore deposit in the far east Russian province of Amur.  Joint Ore Reserves Committee (JORC) compliant probable ore reserves and resources amounted to 170,500 and 341,000 tonnes respectively, of contained nickel as of Dec, 2011.  An application for a license extension was submitted in May, 2012, as the current exploration license expires at the end of 2012.  It is probably worth looking at the reserve grades and resource % Ni content here in the 2011 Annual Report for a better idea of ore quality.

In March of 2011, the Kustakskaya license, just east of the Kun-Manie deposit in the region of Khabarovsk, was returned to Russia.

Sources

  • Norilsk Nickel – Kola MMC – http://www.nornik.ru/en/our_products/kola__mmc/
  • Norilsk Nickel – Polar Division – http://www.nornik.ru/en/our_products/polar_divisions/
  • USGS – Mineral Commodity Summaries 2012 – Nickel – http://minerals.usgs.gov/minerals/pubs/mcs/2012/mcs2012.pdf
  • Amur Minerals – 2011 Annual Report –  http://www.amurminerals.com/Downloads/2011%20_Annual_Report.pdf

New Study on Arctic Polar Bear Health and PCBs – Norway

We all know that the Arctic sea ice has been receding, and is projected, according to many sources, to continue this trend into the foreseeable future.   This phenomenon has the potential to decrease the habitable land that polar bears require for denning, along with the ground from which they are able to hunt.  There is, however, some good news that has surfaced as a result of one study put together by 5 scientists, headed by J. Bytingsvik of the Norwegian University of Science and Technology in Trondheim (NTNU), Norway.  The study looked at the prevalence of PCBs in the polar bears of Svalbard, Norway.

Above Polychlorinated Biphenyls (PCBs)

Contaminants have been accumulating in the Arctic for a long time and eventually make their way into the bodies of various Arctic animals.  PCBs are no exception as they have made their way up to the Arctic through various air streams.  These compounds are reported to have the ability to travel for days before they are broken down by sunlight, or come down to the earth’s surface by way of rain or snow.

From the US Environmental Protection Agency,

PCBs were domestically manufactured from 1929 until their manufacture was banned in the United States in 1979 and throughout the world as per the 2004 Stockholm Convention on Persistent Organic Pollutants.  PCBs have been shown to cause cancer in animals.  PCBs have also been shown to cause a number of serious non-cancerous health effects in animals, including effects on the immune system, reproductive system, nervous system, endocrine system, and other health effects.  Due to their non-flammability, chemical stability, high boiling point, and electrical insulating properties, PCBs were used in hundreds of industrial and commercial applications.

Bytingsvik’s Study (link at bottom)

The study, available as of January, of 2012 from the NTNU website looks at the plasma concentrations and prevalence of PCBs and hydroxylated PCB-metabolites (OH-PCBs) in mother polar bears and their 4 month old cubs from Svalbard, Norway.  In a nutshell, the study compared the concentrations of PCBs in these bears between the sampling years of 1997/1998, and 2008.  The study also looked at the propensity of mothers to transfer these compounds to their cubs through milk, and while still in the womb.

From Bytingsvik’s publication,

Plasma levels of PCBs and OH-PCBs in polar bears mothers and their suckling cubs were found to be significantly lower in 2008 when compared with results from 1997/1998.

She did however find that,

the levels of PCBs and OH-PCBs in cubs from 2008 were still above levels associated with health effects in humans and wildlife.

Studies have also been done in the past on the human ramifications of PCB exposure specific to our developmental stages.

Human infants that have been exposed to PCBs and OH-PCBs prenatally have shown lower birth weights, smaller head circumferences and alterations to thyroid hormone homeostasis.  Exposed children have also been shown to alter neural development, cognitive, motor, and learning abilities.

All in all, it shows that the global effort to reduce PCB pollutants has had a significant effect.  This is one matter that should lead the way for more positive-outcome thinking as it pertains to our global efforts to reduce the prevalence of harmful contaminants.

Sources

  • PCBs and OH-PCBs in polar bear mother–cub pairs: A comparative study based on plasma levels in 1998 and 2008 – 21/Jan/2012 – http://www.ntnu.edu/documents/139226/8932977/Bytingsviketal.pdf
  • Stockhold Convention – http://chm.pops.int/Home/tabid/2121/mctl/ViewDetails/EventModID/871/EventID/230/xmid/6921/Default.aspx
  • U.S. Environmental Protection Agency – Polychlorinated Biphenyls (PCBs) – Basic Information – http://www.epa.gov/osw/hazard/tsd/pcbs/pubs/about.htm

Coal Mining in Svalbard – Store Norske & Arktikugol – Norway

Svalbard Map with Operating Mining Companies Norway

With only a population of 2,753, 423 of those being either Russian or Ukrainian, Svalbard is what is referred to as Norway’s Arctic archipelago of islands.  According to the Svalbard Act of 1925, Svalbard is established as both a free economic zone, and a demilitarized zone.  The economy relies mainly on the coal production of two mining companies.  One Russian, one Norwegian.  The map above displays the property claims of the mining companies operating in Svalbard.

Store Norske  Spitsbergen Kulkompani AS (SNSK) – The Norwegian state-owned mining company fully owns the following 3 subsidiaries.

  • Store Norske Spitsbergen Grubekompani AS (SNSG)- Owns properties that encompass an area of approx. 2000 sq. kilometers within Svalbard.  Operates the Svea Nord coal mine, along with the Gruve 7 coal mine.  Measured coal reserves and probable resources in 2010 were measured to be 20.4 and 3.5 million tonnes respectively.  Coal sales in 2010 and 2009 were 1.7 and 2.5 million tonnes respectively.  In 2010, 1.5% of coal was kept in Svalbard for energy use, where 53% of coal was exported to Germany.
  • Store Norske Boliger AS – Manages Store Norske owned lodgings which are rented out to company employees.
  • Store Norske Gull AS – Gold, nickel, and PGM operations in Troms and Finnmark.

Arktikugol – This Russian state-owned coal mining company operates an area of 251 sq. kilometers in which the mainly Russian and Ukrainian settlement Barentsburg (Баренцбург) is located.  Russia currently works to increase its presence within Svalbard by improving the living conditions of those that work there, supporting economic growth, and attracting Russian and foreign investments.  The company is heavily subsidized by The Russian Federation.  Arktikugol consists of 3 parts.

  • Barentsburg Mine – Coal reserves are estimated to measure 2 million tonnes. Most Barentsburg coal is exported to Denmark, Portugal, and Spain.
  • Grumant Coal Field – This undeveloped field is assumed to hold coal reserves of approx. 30 million tonnes.
  • Pyramiden – Abandoned in 1998, the mining settlement used to be home to over 1000 people.

Climate-Gas Emissions – One would assume that a micro-economy based off of coal production would yield significant climate gas emissions such as CO2, methane, and SO2.  From the Norwegian Ministry of the Environment, we have the following climate gas data for Svalbar for 2007.  Emissions are quite obviously a strong function of local mining industry dynamics and thus vary from year to year.

  • CO2 – 424,787 tons, 42% of which comes from coal-based energy production.  International marine cruise traffic accounts for 15%, marine coal transport from Svalbard to other countries accounts for 13%,  marine cruise/research vessels account for 8%.
  • SO2 – 1,255 tons, 91% of which comes from coal-based energy production.
  • Methane – 3400 tons, 98% of which comes from coal production.

In addition to mining activities, the tourism industry provides economic support, along with the two major research facilities located near the town of Longyearbyen which are listed below.

  • University Centre in Svalbard – Norwegian state-owned university focusing on Arctic studies.
  • The Svalbard Global Seed Vault – Commonly referred to by conspirators as the global doomsday seed vault, the Global Seed Vault is a store of plant seeds that are to be a form of insurance against a major global crisis.  Many different organizations provide funding for the operation which include the government of Norway, and the Bill and Melinda Gates Foundation.

Sources

  • Store Norske 2010 Annual Report – http://www.snsk.no/getfile.php/1669680.1589.qrrvvcscua/AR_2010.pdf
  • Арктикуголь Шпицберген – http://www.arcticugol.ru/
  • Klima OG Forurensnings Direktoratet – Climate Influencing Emissions, Scenarios and Mitigation Options at Svalbard – http://www.klif.no/publikasjoner/2552/ta2552.pdf
  • The University Centre in Svalbard – http://www.unis.no/