Credit Crisis May Delay Shtokman Project


Shtokman Field, Russia
(Click to Enlarge)

MOSCOW (Dow Jones Newswires), December 8, 2008

The credit crisis could delay the launch of Russia's giant Shtokman gas field, the head of the project's operator said Monday.

"One of the most significant questions is the liquidity in the financial market and the possibilities of attracting credit," said Yuri Komarov, chief executive of Shtokman Development AG.

"This is one of the most serious issues, which will determine the beginning of the project development start," said Komarov.

Russian gas monopoly OAO Gazprom owns 51% of Shtokman Development, a joint venture with France's Total SA, which owns a 25% stake, and Norway's StatoilHydro ASA, with the remaining 24%.

Located in icy waters 550 kilometers into the Barents Sea, Shtokman is estimated to hold 3.8 trillion cubic meters of gas and 37 million tons of gas condensate, or enough to meet U.S. demand for six years.

Early estimates of costs to develop the field top $20 billion, and the consortium expects up to 70% of the development cost for the project's first phase to be raised from capital markets.

"We hope that the financial crisis will be over by the time we enter the market," Komarov said, affirming serious interest from banks. The massive Arctic project will remain economically viable if oil prices stay around $50 or $60 a barrel, Komarov added.

The consortium hopes to raise the first funds next year, when it plans to approve a final investment plan for the project's first phase.

Total and StatoilHydro declined to comment.

Production at the field, which was discovered in 1988, has already been delayed several times. At its last estimate, Gazprom expected gas output to start in 2013, with production of liquified natural gas to begin a year later.

But in July, Benedikt Henriksen, chief of StatoilHydro's industrial relations in Russia, said timely development of the field would depend on the choice of subcontractors, expressing doubt that Shtokman would start in 2013.

While agreeing that the credit crunch may slow Shtokman's timetable, some analysts suggest the project's original plans were unrealistic.

Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies, said he "was always skeptical that Shtokman will be delivered on time, given the incredible difficulty of the project."

Stern said he had expected the project to be completed toward 2020, or at least not before 2017.

Energy giants including U.S. pair ConocoPhillips and Chevron Corp. for years had hoped to participate in the development of Shtokman before Russia surprised everyone in autumn, 2006, by saying it would develop the field on its own.

But after years of negotiations, Gazprom last year chose Total and StatoilHydro to help.

However, the terms are unusual for the oil industry and unfavorable for Gazprom's partners. To date, neither has been able to book reserves from Shtokman, which, for the time being, belongs entirely to Gazprom.

The consortium plans to produce 23.7 billion cubic meters of natural gas a year in the first phase of development.

Copyright (c) 2008 Dow Jones & Company, Inc.

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