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Gazprom names candidates for Shtokman

Financial Times: Gazprom names candidates for Shtokman

“Gazprom would not say why it excluded Shell, with whom it has had a strategic alliance for almost a decade, but industry observers suggested tensions over Sakhalin 2, Shell’s LNG project off Russia’s east coast, may have contributed.”: “This summer Gazprom agreed to swap 50 per cent of its Siberian gas field, Zapolyarnoye, for a 25 per cent stake in Sakhalin 2. But less than a week later, Shell raised the cost of Sakhalin 2 from $12bn to $20bn.”: “Shell, looking to replenish oil and gas stocks after last year’s reserves overbooking scandal, was “disappointed not to have been selected.”

Saturday 17 Sept 2005

By Arkady Ostrovsky in Moscow and James Boxellin London

Published: September 17 2005

Gazprom, the Russian gas monopoly, has named a shortlist of five foreign companies as potential partners to develop the giant Shtokman gas field in the Barents Sea, one of the world’s biggest and most challenging energy projects.

The companies competing for a slice of the $20bn liquefied natural gas project, which aims to supply the US, are ChevronTexaco and ConocoPhillips of the US, Statoil and Norsk Hydro of Norway and Total of France. ExxonMobil and Royal Dutch Shell, two of the biggest energy groups, failed to make the shortlist.

Gazprom will keep 51 per cent of the project and select two or three partners from the shortlist early next year. Alexei Miller, Gazprom chief executive, said no decision had been taken on how to divide the foreign stakes. Gazprom needs US companies to provide access to their home market and downstream infrastructure, while Norwegian and French companies could provide technical expertise on the project, which involves pumping gas in deep arctic waters 550km north of Norway and building a gas liquefaction plant in Russia’s far north. Shtokman is one of the world’s biggest gas fields with reserves of 3,200bn cu m. It is key to Gazprom’s plan to become a main player in the booming LNG market. While the first phase will focus on LNG, later supplies could help fill a proposed gas pipeline from Russia to Germany. Gazprom would not say why it excluded Shell, with whom it has had a strategic alliance for almost a decade, but industry observers suggested tensions over Sakhalin 2, Shell’s LNG project off Russia’s east coast, may have contributed.

This summer Gazprom agreed to swap 50 per cent of its Siberian gas field, Zapolyarnoye, for a 25 per cent stake in Sakhalin 2. But less than a week later, Shell raised the cost of Sakhalin 2 from $12bn to $20bn.

“This may not have been a decisive factor, but it was probably a contributing one,” an observer said.

Shell, looking to replenish oil and gas stocks after last year’s reserves overbooking scandal, was “disappointed not to have been selected. We put forward a good proposal and thought we could have brought a lot to the project.”

Exxon, which has a separate gas project around Sakhalin, simply said it would continue to work with “Gazprom and others” in Russia. Ian Woollen, analyst at Wood Mackenzie, the oil consultancy, said: “I’d imagine they’d be disappointed but I don’t know about hugely disappointed. Exxon is a massive company. For the Norwegians, this is a much bigger deal.”

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