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Russia: Shtokman plans hit the buffers

GAS IS IN oversupply, prices are low, demand has slumped and the situation could persist for years, say analysts. So with its finances still shaky, Russia's Gazprom and its partners in the pricey Shtokman gasfield development have delayed their flagship project.

Last month, Total, one of the shareholders in Gazprom-led Sevmorneftegaz, which will develop Shtokman, said a final decision on whether to proceed with the $15bn project would only be made at the end of this year. Arnaud Breuillac, one of its executives, said that in present "conditions it is absolutely normal that the project is taking more time than was initially planned".

Ominously, he added that "projects on a scale such as Shtokman are coming up against difficulties in attracting finance". Total later said that Breuillac had been referring to the contracting process for work on Shtokman, with services companies having asked the partners for more time to bid for contracts. In October, Total's boss, Christophe de Margerie, said Shtokman would not be viable at today's natural gas prices.

Shtokman is not the first important project that Gazprom has delayed since gas prices and demand started falling last year. Development of the Bovanenkovo field, in the Yamal peninsula, has been put back by a year and will now begin in late 2012. Previously, Gazprom said financing its projects was not a problem and its spending plans would be unaffected by the recession and a collapse in its export revenue.

The Shtokman partners (Gazprom, 51%, Total 25%, and Statoil, 24%) still hope to bring gas production online from Shtokman in 2015, with exports of liquefied natural gas (LNG) from the 3.8 trillion cubic metres (cm) field a year later. First-phase production would amount to around 23bn cm/y, but with the second phase Gazprom says output could reach 70bn cm/y.

LNG exports from the remote field, which is in the Barents Sea, some 600 km northeast of Murmansk, would be targeted at the US market, Gazprom said in the past. However, imports of LNG into the US have all but evaporated, following large discoveries of unconventional gas in the country. And analysts say global oversupply of LNG could cause prices to stay low for years.

Shtokman's gas could also eventually feed into Nord Stream, a 55bn cm/y pipeline Gazprom and its European partners are building to link Russia with Germany (see p12). However, the latest delay will raise concerns about Gazprom's ability to execute its biggest projects in its own upstream, on which depend its ambitions to increase market share in Europe's gas sector from 25% to 30% and capture 25% of the global LNG market by 2020.

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