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Bloomberg: Shell Says Yamal Gas Could Supply Planet for Decade (Update1)

By Greg Walters

Nov. 21 (Bloomberg) — Royal Dutch Shell Plc and its partners said Russia’s Yamal peninsula and Kara Sea may hold more than 30 trillion cubic meters of gas, enough to supply the world for a decade, in a plan presented in the Kremlin.

Shell Chief Executive Officer Jeroen van der Veer and his counterparts in Dutch companies including gas trader GasTerra BV told Russian President Vladimir Putin that development of the Arctic region may cost “several hundred billion” dollars and take more than 50 years, according to a slide presentation received yesterday from GasTerra.

Russia said a week ago it was “interested” in the proposal to develop the country’s far northern peninsula. The Dutch energy companies, including Essent NV and Nederlandse Gasunie NV, plan to work in the region with state-run OAO Gazprom, which needs the fuel from Yamal to replace dwindling output at existing fields.

“Gazprom needs Yamal, and it needs it in the early years of the next decade to keep production where it is today,” Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies, said yesterday by telephone from London.

Rising Demand

Gazprom, the world’s biggest gas producer and Russia’s export monopoly, meets a quarter of Europe’s demand for the fuel. The Moscow-based company’s three major fields are in decline, while the International Energy Agency has forecast global demand will rise 65 percent by 2030 from 2.9 trillion cubic meters of gas a year in 2005. Shell was forced to sell control of its $22 billion Sakhalin-2 oil and gas project in Russia’s Far East to Gazprom after regulators threatened to halt the development.

The Yamal region, above the polar circle, “poses extreme development challenges,” the proposal said. Rail, road and shipping routes “are yet to be built.” The presentation included plans for building artificial islands and “barge-based floating” liquefied natural gas facilities.

“Preliminary estimates of total investments for developing the gas and oil fields and supporting infrastructure are of the order of several hundred billion” dollars, according to the proposal.

Yamal is “definitely” the most difficult onshore gas region in the world, Stern said, adding that if Gazprom fails, its output could fall.

Gazprom may reject foreign companies’ offer to help develop Yamal’s onshore reserves and is more likely to want foreign help with the offshore deposits and in transporting the gas, Stern said.

Pipeline Problems

“Gazprom doesn’t need any help to drill the wells onshore,” Stern said. “The problem is, how do you deal with pipeline transportation in conditions when the ground shifts massively because of freezing and thawing?”

Gazprom Deputy CEO Alexander Medvedev declined to comment on the Dutch plan during a meeting with reporters in Moscow yesterday. The company’s press office didn’t return calls seeking comment.

“We regard the contents of the discussion between Jeroen van der Veer and President Putin as confidential and will therefore not comment further,” Shell spokeswoman Saskia Kapinga said by phone from London.

Gazprom has previously sought the help of international oil and gas producers to develop fields in harder-to-reach regions. The company picked France’s Total SA and StatoilHydro ASA of Norway for Shtokman, a deposit in the Arctic Ocean with enough gas to supply the world for more than a year.

Shtokman Reserves

Shtokman probably holds 3.8 trillion cubic meters of the fuel, 100 billion cubic meters more than previously estimated, Gazprom said last week.

Output at The Hague-based Shell, which slashed its proven oil and gas reserve estimates in 2004, has dropped for four straight years. The company is planning to revive growth through projects such as a gas-to-liquids venture in Qatar and Canadian oil-sands production.

Gertjan Lankhorst, the CEO of GasTerra, delivered the proposal to Putin on behalf of the Dutch business delegation, said Ben Warner, a GasTerra spokesman. The delegation was led by Dutch Prime Minister Jan Peter Balkenende, who called the Yamal proposal “very important” in a Moscow interview on Nov. 7.

Gasunie Chief Executive Marcel Kramer said yesterday “the joint involvement of various Dutch companies in this package of proposals was well received in Moscow.”

Kramer said Gasunie would assess its possible contribution to the project as a “midstream infrastructure company.”

Russia `Interested’

Russia is “interested” in the Dutch Yamal plan, Deputy Energy Minister Anatoly Yanovsky said in Rome last week. “One can expect that in the development of the Yamal fields, Shell’s proposal will be implemented,” he said.

Shell would “theoretically” be able to book reserves from the project, which would involve oil, pipeline gas and the production of LNG, Yanovsky said.

GasTerra is 25 percent-owned by Shell, with 25 percent held by Exxon Mobil Corp. The remainder is owned by the Dutch government. The company was created in 2004 after the split-up of Gasunie, the Dutch gas distribution company.

To contact the reporters on this story: Greg Walters in Rome at [email protected] ;

Last Updated: November 21, 2007 09:37 EST

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