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Shell may join Russia’s Shtokman gas team: sources

By Olesya Astakhova and Vladimir Soldatkin

MOSCOW | Fri May 25, 2012 5:12am EDT

(Reuters) – Royal Dutch Shell (RDSa.L) may join a Gazprom (GAZP.MM)-led initiative to extract gas from the Arctic seabed off Russia’s coast, several sources said, in an attempt to inject new impetus into the huge project delayed by years of talks over financing.

Located in the freezing waters of the Barents Sea, the Shtokman gas field is one of the world’s largest with reserves of almost 4 trillion cubic meters – enough to meet global demand for about a year. However, the project to extract gas has been mired in prolonged and painstaking talks over billions of dollars of investment, timing and the make-up of the consortium.

Shell may take the place of Norway’s Statoil (STL.OL), which might leave the project, Russia’s Kommersant daily newspaper said on Friday. Statoil owns 24 percent of Shtokman, France’s Total (TOTF.PA) owns 25 percent and Gazprom, the world’s largest gas producer, holds 51 percent.

“Talks regarding Shell’s participation in Shtokman are under way … There are different project configurations under discussion now but Gazprom will keep a 51 percent stake,” a source close to the consortium told Reuters on Friday.

A Gazprom spokesman said the company was preparing a statement on the matter for issue later on Friday. Spokespeople at Shell and Shtokman Development AG declined to comment.

Shtokman, located 550 km (340 miles) off the shores of Russia, still aims to begin gas deliveries to Europe via the Nord Stream pipeline in 2016 and start shipping gas which has been frozen to form a liquid (LNG) around the world from 2017. The first exploration well was drilled in 1988.

But the backers of the project, fraught with hardships and dangers such as high sea waves, bitterly cold weather and huge icebergs, have been unable to reach a final decision to make investments that at the initial stage could total $15 billion.

Gas from Shtokman had previously been earmarked for the United States, but booming North American shale gas production forced the consortium to scrap its plans and look for other markets.

Sagging demand for gas in debt-stricken Europe, Gazprom’s key source of revenue, also caused Shtokman to consider dropping plans for pipeline gas and instead focus solely on the production of LNG.

According to media reports, the St Petersburg International Economic Forum in June, where Russian President Vladimir Putin is expected to give a keynote speech, will be the venue for the consortium to announce a new approach to developing the project.

The consortium in its present form was established in 2008 with a view to producing 23.7 billion cubic meters of gas per year.

BUMPY RELATIONS

Shell and Gazprom are already partners at Sakhalin-2, Russia’s sole LNG plant with annual capacity of 10 million metric tons (1.1023 tons).

Gazprom clinched a $7.45 billion deal in 2006, following months of pressure from Russian officials, to buy half of Sakhalin-2 from Shell and its partners, as the Kremlin tightened its grip on Russia’s energy sector.

Shell and Gazprom have also been in talks about the Russian company joining the Anglo-Dutch major’s foreign oil and gas projects, although no specific projects have yet been named.

Gazprom sources said earlier this week that there could be a departure from Shtokman.

According to Kommersant, a possible new structure for Shtokman will be discussed at a meeting, chaired by Putin later on Friday, with the chief executives of Gazprom and Statoil.

A Statoil spokesman said that the consortium is “working toward a final investment decision and achieving a full LNG solution.”

Analysts have been divided over who may leave Shtokman. Some say that Statoil’s departure is in the cards as the company is focusing on projects with high returns, citing the Norwegian company’s departure from an Iraqi field to support their view.

Industry sources say that Gazprom is increasingly dissatisfied with Total’s view over Shtokman’s future, while the French major is pushing another LNG project in Russia it is working on with Novatek (NVTK.MM) in the Yamal peninsula.

(Additional reporting by Melissa Akin in Moscow, Balazs Koranyi in Oslo and Tom Bergin in London; Editing by Erica Billingham)

SOURCE

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