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Financial Times: Gazprom close to Shtokman gas field deal

By Ed Crooks in London
Published: July 8 2007 22:01 | Last updated: July 8 2007 22:01

Gazprom is “very close” to a deal to develop the vast Shtokman gas field in Russia, making a concession to international energy groups by allowing foreign companies to be partners in the project, according to one of the company’s top executives.

Signing a deal to develop one of the world’s biggest gas reserves would be an important success for any of the three groups that have been in talks with Gazprom: Statoil and Norsk Hydro of Norway, which are in the process of merging, Total of France and ConocoPhillips of the US. The cost of the project has been estimated at $20bn-$30bn.

The comments made by Alexander Medvedev, who is in effect Gazprom’s deputy chief executive, show a softening of the Russian company’s position from last October, when it said international companies could not take equity stakes in the licence for Shtokman and could work on the project only as contractors.

Mr Medvedev told the Financial Times that Gazprom was in talks with foreign companies about a “new model” of co-operation that would “allow foreign partners to share in the economic benefits of the project, share the management, and take on a share of the industrial, commercial and financial risks”.

That could be done by giving international oil companies stakes in the company running the project, rather than in the Gazprom subsidiary that owns the Shtokman licence.

Mr Medvedev said he expected the project to produce its first gas in 2013, and begin shipments of liquefied natural gas in 2014. The revival of the plan to include an LNG plant in the project, which could supply the US, also represents a reversal from last year, when Gazprom suggested it would prefer to sell the gas to Europe through a pipeline.

Gazprom’s concession in allowing equity participation for foreign companies reflects a recognition that it needs their expertise for such a difficult field.

Shtokman lies more than 500km off Russia’s north coast, in 350m of water. The Arctic conditions make production challenging; not least because of the threat of icebergs.

The potential, however, is enormous. Shtokman’s reserves have been estimated at 3,200bn-3,700bn cubic metres of gas; enough to supply Russia’s entire gas production for five to six years.

Jonathan Stern of the Oxford Institute for Energy Studies warned that even with the participation of foreign partners, 2013 looked an ambitious target date.

Copyright The Financial Times Limited 2007

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