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Bloomberg: Total Picked to Develop Gazprom’s Shtokman Gas Field (Update3)

By Lucian Kim and Torrey Clark
 
Alexei Miller, CEO of OAO Gazprom July 12 (Bloomberg) — OAO Gazprom, the world’s largest natural-gas producer, chose Total SA to help develop Shtokman, an Arctic offshore field that may hold enough gas to supply Europe for more than three years.

Paris-based Total will take 25 percent in an operating company that will finance, build and own infrastructure in the $20 billion project, while the Russian company will hold the rest, Gazprom Chief Executive Officer Alexei Miller said in an e-mailed statement today. Gazprom may later offer 24 percent to one or more additional foreign partners, Miller said.

Gazprom, which already supplies a quarter of Europe’s gas, expects Shtokman to revive stagnating output as world demand for the fuel soars. The company may also sell half of the field’s output as liquefied natural gas to new customers like the U.S., helping President Vladimir Putin realize his plan to turn gas into a globally traded commodity like oil.

“Shtokman is the biggest undeveloped gas field in the world,” said Chris Weafer, chief strategist at Alfa Bank in Moscow. “Shtokman will fill all of Europe’s new demand and allow Russia to completely dominate the global LNG trade by opening up markets like the U.S.”

Gazprom plans initial production of 23.7 billion cubic meters of gas a year at Shtokman, with first pipeline deliveries in 2013, Miller said. The first shipment of LNG, super-cooled gas for transport by tanker, will follow the next year.

Scrapped Plan

Gazprom last year scrapped its original plan to let foreign partners share ownership of the license and output. The company was considering a shortlist of partners that included Total, Statoil ASA, Norsk Hydro ASA, Chevron Corp. and ConocoPhillips.

Total spokeswoman Patricia Marie said she couldn’t confirm that a decision had been taken on Shtokman. Talks with Gazprom are “very advanced” and an agreement may be signed tomorrow, she said by phone from Paris.

“We are still in a dialog with Gazprom,” Ola Morten Aanestad, a Statoil spokesman, said by phone. “The solution that Gazprom and Total have agreed on is of interest to us.”

Gazprom repeatedly delayed making a decision on the field’s development and surprised possible partners in October when Miller went on state TV to say Gazprom would develop Shtokman alone. The company later softened its stance, saying it would accept international companies as operating partners and possibly let them book some of Shtokman’s reserves.

`Minimal’

“Given the political situation, the probability a U.S. partner would be chosen for the project was minimal from the get-go,” said Steven Dashevsky, co-head of equities at Aton Capital in Moscow, referring to tense relations between the U.S. and Russia. “It would be reasonable to assume the Norwegians will get a stake.”

While one or more additional foreign partners may still be allowed into the project, Miller said Gazprom won’t let its stake to fall below 51 percent.

Since rejecting shared ownership of the actual Shtokman license, Gazprom has taken control of Royal Dutch Shell Plc’s Sakhalin-2 project, Russia’s first LNG development, which is scheduled to start exports next year. In June Gazprom agreed to buy BP Plc’s stake in the east Siberian Kovykta field, which may help fill a planned pipeline to China.

“Having Total as a partner as well as Shell is good news for Russia and Gazprom,” said Alexandre Starinsky, a fund manager at Atria Advisors Ltd in Moscow. “They have to boost output and anything that optimizes Gazprom’s spending is positive.”

Production

Gazprom eventually plans to produce 71 billion cubic meters of gas a year at Shtokman, with the possibility of increasing that to 94 billion cubic meters, Deputy Chief Executive Officer Alexander Ananenkov said on June 14. The field, located 500 kilometers offshore in the icy Barents Sea, is estimated to contain as much as 3.7 trillion cubic meters of gas, or more than three times Europe’s total consumption last year.

“The devil will be in the detail” on how much reserves, if any, Total will be allowed to book as its own, said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who has a “buy” rating on Total. Miller said today that Gazprom will own 100 percent of the Shtokman license and all of its production.

Shtokman gas will be used to fill the Nord Stream pipeline which Gazprom is planning to build under the Baltic Sea directly to Germany. The new link is planned to have a capacity of 55 billion cubic meters of gas by 2013. Under one possible scenario Gazprom is considering, half of Shtokman gas will eventually be exported to overseas markets like the U.S. as LNG.

“Europe is not going to get the amount of gas it needs in the future from any place other than Shtokman,” Weafer said. “If Nord Stream is completed before Shtokman is producing, there won’t be enough gas to fill it without turning the lights off in Siberia.”

Although Gazprom holds 16 percent of the world’s proven gas reserves, its three largest fields in western Siberia are all in decline. In 2006 Gazprom pumped 556 billion cubic meters of gas, slightly less than it produced 10 years earlier.

To contact the reporters on this story: Lucian Kim in Moscow at [email protected] ; Torrey Clark in Moscow at [email protected]

Last Updated: July 12, 2007 08:06 EDT

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