Gazprom Rejects Foreign Partners for Shtokman

Shtokman Field, Russia
(Click to Enlarge)
MOSCOW Oct 9, 2006 (Dow Jones Newswires)

Russian natural gas giant OAO Gazprom (GSPBEX.RS) will reject bids from all five foreign companies hoping to join in developing the massive Shtokman natural gas field, and will instead develop the field on its own, Gazprom chief executive Alexei Miller said Monday, Russian newswires reported.

Five international oil majors had hoped to take minority stakes in the project including U.S. companies ConocoPhillips (COP) and Chevron Corp. (CVX). France's Total SA (TOT). Norwegian companies Statoil ASA (STO) and Norsk Hydro ASA (NHY) had also been on the shortlist.

Separately, Miller said gas from Shtokman would go primarily to Europe by pipeline - instead of by tanker in the form of liquefied natural gas to the U.S., as had been originally proposed.

Miller said the gas will be used to feed the Nord Stream pipeline - the new name for the North European Gas Pipeline - which is being built from the Russian town of Vyborg across the Baltic Sea to Germany.

All five companies had pushed hard to join the project, and Gazprom had earlier said it would accept two or three of them as minority partners. The Russian company had repeatedly pushed back the deadline for choosing partners, citing the complexity of the five bids. Monday, Miller declared that none of the five companies' proposals were acceptable.

The offshore Shtokman field holds about 3.6 trillion cubic meters of gas.

The reserves at Shtokman are enough to supply all U.S. gas needs for more than five years at current rates of consumption, according to a 2006 report from BP PLC (BP).

Total declined to comment immediately. Nobody was immediately available to comment at Norsk Hydro, Statoil, Chevron or ConocoPhillips.

"Gazprom had examined giving 49% of the Shtokman project to foreign companies," Miller said in a press release issued by Gazprom later Monday. "However, the foreign companies could not offer assets that compare to the volume and quality of Shtokman's reserves."

Miller also added, however, that some LNG was planned to be produced at the site.

Instead of giving foreign partners equity in the project, however, Miller said Gazprom would attract "authoritative international companies" to work as subcontractors in helping to develop the field.

"This decision is a further guarantee of the dependability of Russian gas deliveries to Europe for the long term, and it is proof that the European market has the highest importance to the company," Miller said.

Copyright (c) 2006 Dow Jones & Company, Inc.

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