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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