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The Times: Shell puts ‘hundreds of billions’ price tag on Siberian Arctic gas

November 22, 2007
Robin Pagnamenta

Royal Dutch Shell and its partners have told the Russian Government that developing vast gasfields in the Siberian Arctic would take half a century and cost “hundreds of billions” of dollars.

Jeroen van der Veer, Shell’s chief executive, met President Putin this month to discuss the proposed project in the Yamal Peninsula and Kara Sea. He was accompanied by a high-level Dutch business delegation.

They estimated that the region could hold more than 30 trillion cubic metres of gas, more than the combined proved reserves of Gazprom, the state-controlled Russian gas monopoly.

Shell said that the meeting was confidential and would not make any further comment, but a slide presentation from GasTerra, one of the Dutch groups at the meeting, said: “Preliminary estimates of total investments for developing the gas and oilfields and supporting infrastructure are of the order of several hundred billion dollars.”

Russia has said that it is “interested” in the plan to unlock reserves of oil and gas on the 700km-long (435 mile) Yamal Peninsula, one of the world’s most remote and inhospitable regions. Gazprom, the world’s biggest gas supplier, is keen to tap the region’s reserves early next decade to replace falling production at its three main fields – Urengoi, Yamburg, and Medvezhye – all of which are in decline.

The project to develop Yamal, which means “end of the world” in the language of the Nenets, its indigenous inhabitants, would also involve Dutch energy companies, such as Essent and Nederlandse Gasunie.

Shell is eager to gain access to big new oil and gas projects to replace its own depleted reserves, but the company has been burnt badly before in Russia. Last year, it was forced to surrender control of the $22 billion Sakhalin 2 project in the Russian Far East to Gazprom after pressure from Russian regulators.

Russia, meanwhile, still needs foreign expertise to develop reserves of oil and gas in some of its most challenging regions.

This year Gazprom linked up with Total, of France, and StatoilHydro, of Norway, to develop another huge gas deposit in the Shtokman region of the Barents Sea. It is believed to hold 3.8 trillion cubic metres of gas and will cost more than $20 billion to develop.

The presentation to Mr Putin was made by Gertjan Lankhorst, chief executive of GasTerra, which is 25 per cent owned by Shell, 25 per cent by Exxon-Mobil and 50 per cent by the Dutch Government. The revelations about the vast scale of developing Yamal came as Shell said that it planned to spend $410 million acquiring a 51 per cent interest in two Ukrainian gasfields controlled by Regal Petroleum, the AIM-listed oil and gas group founded by Frank Timis.

Under a memorandum of understanding, Shell will pay $50 million for a 51 per cent stake in the Mekhediviska-Golotvschinska and Svyry-divske gasfields and a further $360 million to develop them. “[This] is another important step in Shell’s development in Ukraine,” Patrick van Daele, general manager of Shell Ukraine’s exploration and production division, said. Shell already has operations in the Dniepr Donetsk Basin, northeast of Kiev, where the fields are located. Russia’s reserves of natural gas are thought to be 48 trillion cubic metres – by far the world’s largest. Iran has the second-largest reserves, of 28 trillion cubic metres.

Shell’s output has fallen in each of the past four years. It was forced to lower its proven oil and gas reserves in 2004 after an accounting scandal triggered the departure of Philip Watts, its chairman, Walter van de Vijver, its oil and gas chief, and Judy Boynton, the chief financial officer.

Shell’s big projects

Sakhalin 2, Russian Far East
A $22 billion integrated oil and gas project, Shell has faced problems in Sakhalin with spiralling costs and Russian government interference

Athabasca Oil Sands, Alberta, Canada
A technically challenging and costly project to convert tar sands into oil. Produces 155,000 barrels per day with plans to increase to up to 500,000 barrels

Pearl Gas-to-Liquids, Qatar
A joint venture with the Qatari Government, costs have risen to $8 billion on this 140,000 barrel-per-day project

Bonga, offshore Nigeria
120km (74.5 miles) off the coast of the Niger Delta, Bonga is producing 225,000 barrels of oil and 150 million cubic feet of natural gas per day

Na Kika, Gulf of Mexico
230km (144 miles) southeast of New Orleans, Na Kika is a joint venture with BP.

Yamal
If it goes ahead, Yamal would easily exceed all of these in terms of cost, complexity and production. The venture would involve laying pipelines hundreds of kilometres to reach the Nadym-Purtaz production region owned by Gazprom. The Russian company would be a partner to Shell in the project

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2917609.ece

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