Gazprom Mulls New Partners for Revamped Shtokman Project

KUALA LUMPUR - Russian gas behemoth OAO Gazprom is considering finding new partners to develop its Shtokman field off the Russian Arctic as it seeks to turn it into a full liquefied natural gas project, its vice chairman, Alexander Medvedev, said Wednesday.

Mr. Medvedev said the current partners--Norway's Statoil ASA and France's Total SA, which have stakes in the project's consortium of 24% and 25%, respectively--had "good chances" of remaining.

He also said he had "a good idea" of who Gazprom's new partners could be but he declined to say.

Gazprom has been seeking to develop Shtokman, one of the world's largest natural gas fields, since the early 1990s, and after several attempts has put together a consortium comprising Statoil, Total and itself. But technological challenges and precipitously low gas prices, as well as the emergence of the U.S. as a gas exporter, have called its financial viability into question. The final investment decision for project hasn't been announced.

The three partners have extended negotiations until June 30, and the past weeks have been rife with rumors of Statoil dropping out of the project.

Earlier Wednesday, in an interview with Dow Jones Newswires, Statoil Vice President Eldar Saetre said his company remained fully committed to the project and that he hoped it would go through after having received "positive signals" from the Russian authorities on the financial framework.

"Our decision to switch Shtokman to a full LNG project reflects our vision for gas demand and supply," Mr. Medvedev said, speaking to reporters on the sidelines of an industry conference.

Initially, half of the gas extracted at Shtokman was supposed to be sent to the U.S. and Europe via pipelines.

Gazprom also hopes to send gas via pipeline to China, through what is called the western corridor, and Russian President Vladimir Putin was in Beijing this week, attempting to rekindle the talks.

The parties have failed to agree on a start-up price, Mr. Medvedev said, noting that "the gas market in China is quite subsidized" while there is also competition from domestic gas production.

Gazprom and China National Petroleum Corp. signed a framework agreement in 2009 to transport 70 billion cubic meters of Russian gas annually to China through two pipelines, one running into western China and the other to the east of the country.

Gazprom wants gas prices similar to those it receives in Europe, while CNPC is holding out for a discount.

Pricing is especially sensitive for CNPC, because it faces government price controls on natural gas sold in the domestic Chinese market.

The company is paying European-level prices for natural gas imported via pipeline from Turkmenistan, meaning it is likely selling at a loss in the domestic market, according to analysts.

Copyright (c) 2012 Dow Jones & Company, Inc.


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