Summary
The Shtokman Development AG consortium announced on February 5 that it will delay the startup of the Arctic gas project. Natural gas will begin flowing to Europe in 2016. Liquefied natural gas (LNG) will start in 2017. It a delay of about 3 years. A final pipeline decision will be made in March of 2011 and an LNG plant decision by the end of that year. Total and Statoil are part of the consortium. Experts have questioned Gazprom's financial and technical ability to complete the project.
Analysis
Shtokman was discovered in 1988 but delineation drilling only began during 1990-95. Five wells indicated that the field contained 3.8 trillion cubic meters of gas and 31 million tons of condensate. The difficulty lies in the 555 kilometers of icy sea between the field and Murmansk. This is compounded by water depths of 350 meters. Nevertheless, in the autumn of 2006 Alexi Miller, CEO of Gazprom, surprised the industry by announcing that foreign oil companies would be excluded for participation because they could not possibly provide the capital. But after further contemplation it was decided to offer participation to Total (France) and Statoil Hydro (now Statoil). Norsk Hydro, had drilled one of the delineation wells for Gazprom in the 1990s and more recently split off its oil and gas division and merged it into Statoil. Thus Statoil was a logical candidate for the consortium. Total too has had experience in severe subzero temperatures and general severe conditions. It also has plenty of capital. Thus the choice of participants had considerable logic behind it. To develop the huge field, two Arctic service semisubmersibles are under construction at a shipyard near Vyborg. Doris Engineering and Russia's Central Design Bureau of Marine Engineering began studies in September of 2007. The first production facility design was based on the use of a spar but pack ice and roving icebergs convinced the planners that a huge floating production unit was the correct solution. This unit will have to be in compliance with the requirements of the Russian Maritime Register of Shipping. By late 2009, estimates of the size of the unit were complete but much design work remains. Had the world not been shaken by the Financial Crisis of 2007-2008 (and still the dominant constraint on planning), natural gas consumption in Europe would have continued its steady upward trajectory and new supplies from Russia would have been required as early as 2014. But that condition has softened. Another complicating factor is that the Nord Stream pipeline, when completed, will run beneath the Baltic Sea is also delayed. This combination of factors forms the backdrop for the announced delay and it may not be the last.
