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UPI: Shortlist unveiled for giant Gazprom field

UPI: Shortlist unveiled for giant Gazprom field

“Industry experts told United Press International Gazprom’s decision not to include Shell might have been attributed to the difficulties Shell encountered in implementing the Sakhalin-2 project, where cost overruns nearly doubled to some $20 billion while delays are expected to push back production.”

Posted Saturday 17 Sept 2005

By ANDREA R. MIHAILESCU

WASHINGTON, Sept. 16 (UPI) — Major U.S. oil and gas companies lobbied Russian President Vladimir Putin during his visit to New York as Gazprom named potential partners for the multibillion dollar Shtokman gas field project in the Barents Sea.

To invest in these projects, foreign companies must directly negotiate with the Kremlin.

“North America will be the main destination for gas supplies from the Shtokman deposit,” Chief Executive Officer Alexei Miller was quoted by RIA Novosti.

Production is scheduled to commence in 2010 and is expect to reach full capacity two years later. Although it has yet to produce any liquefied natural gas, Gazprom is eager to emerge as a player on the international LNG market.

The main recipients of the liquefied natural gas will be the United States and Europe, with 25 percent of LNG shipments going to the United States.

Gazprom announced Friday it has selected a shortlist of five potential candidates — Norway’s Stateoil and Norsk Hydro, France’s Total, U.S.-based Chevron and ConocoPhillips.

“The Norwegians gained a rich experience in offshore development in northern seas, while Total, Chevron and Conoco Phillips gained a good reputation in Russia,” Gennady Shmal, president of the Russian Union of Oil and Gas Producers, told Itar-Tass.

Holding the controlling stakes in the project with 51 percent, the Russian natural-gas monopoly will select two or three of the five candidates within six months to co-finance the development, Miller said.

“This project can be developed under product sharing agreements,” Miller told journalists.

“The development of the Shtokman natural gas field will have a significant influence on the Russian economy if Russian companies receive at least 70 percent of orders,” Miller added.

In addition to holding talks with heads of Chevron and ConocoPhillips, Putin also met with the chief executive of ExxonMobil and Royal Dutch/Shell, who did not make the shortlist.

Shell said its relationship with Gazprom will remain unaffected.

“We are sure it won’t reflect on our cooperation with Gazprom, foremost in the Sakhalin-2 project,” Maxim Shub, spokesman for the company’s Moscow office, told Itar-Tass, adding, “Shell regrets being left out.”

The Shell official added: “We believe our technical proposal to develop Shtokman was impressive enough, and that it met the interests of the project.”

The British-Dutch joint venture accounts for more than 40 percent of global LNG production and has a good position in North American markets, which is a prime recipient of Shtokman LNG.

Industry experts told United Press International Gazprom’s decision not to include Shell might have been attributed to the difficulties Shell encountered in implementing the Sakhalin-2 project, where cost overruns nearly doubled to some $20 billion while delays are expected to push back production.

Nearly a dozen international oil and gas giants sought to place their names on the bid list to Gazprom in developing the Shtokman field, which is located under the seabed of the Barents Sea off northwestern Russia.

The shortlist also did not include Japan’s Mitsui and Summito.

Gazprom head said he expects the joint venture to be created within the next four to six months.

Gazprom shipment of its first 62,000 tons of Russian-owned LNG to U.S. markets Sept. 2 inaugurated the Russian monopoly as world’s largest natural gas company on the global LNG market.

Shtokman has an estimated capacity of up to 113 trillion cubic feet of natural gas and could cost some $10 billion to $20 billion to develop. By comparison, major gas exporters Canada and Indonesia have proven reserves of 56.5 trillion and 91.8 trillion cubic feet, respectively.

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