Gazprom’s apparent decision to target the future production of its undeveloped but vast Shtokman natural gas field to Europe instead of the United States will have little effect on future U.S. liquefied natural gas (LNG) markets, some analysts said.
Monday Gazprom said it would develop the field on its own instead of partnering with one of several major European or U.S. companies that had been vying to work with the Russian gas giant. The decision is obviously a disappointment to potential partners ConocoPhillips, Chevron, Total, Statoil, and Norsk Hydro. It remains to be seen whether Gazprom’s move also will hinder the plans of some U.S. LNG terminal developers whose projects could have received LNG from Shtokman.
Gazprom CEO Alexei Miller told Russian television that the massive state oil company will develop the huge Shtokman field on its own and ship supplies to Europe via pipeline — not to the United States via LNG tanker.
“The European market is the No. 1 for Gazprom,” Reuters quoted Miller as telling Russia Today television Monday. The Shtokman field is in the Barents Sea and is said to contain enough gas (113 Tcf) to supply the entire world for a year. Cost estimates on development range up to $20 billion.
Last month Russian President Vladimir Putin signaled a change in direction for Shtokman when he said a large part of the field’s production could be shipped to Europe, as had been requested by German Chancellor Angela Merkel. “I can inform you that Gazprom is looking at that, and the decision to do that could be taken in the near future,” Reuters quoted Putin as saying at a press conference with Merkel and French President Jacques Chirac.
Some analysts have said criticism of Putin’s energy policy by Vice President Dick Cheney, as well as stalled talks over Russia’s bid to join the World Trade Organization have chilled the cooperation on energy previously sought by Putin and President Bush (see Daily GPI, Feb. 28, 2005).
Stephen Thumb, an analyst with Arlington, VA-based Energy Ventures Analysis (EVA), told NGI, that his firm had not factored LNG from future Shtokman gas production into its analyses because it doesn’t expect anything to come on line until about 2013. Assuming the production comes on line as planned, Thumb said he sees little impact on U.S. LNG markets.
“I just think it will not affect us that much because we’ll get a larger share of the spot market,” Thumb said. “A growing spot market for LNG will ship to our Atlantic Coast as opposed to the European Coast because they’ll be getting it [from Gazprom] by pipeline.”
Katie Elder, senior director with R.W. Beck, told NGI that she was not particularly surprised by Gazprom’s decision as it “reflects Russia’s perception of its strategic interests” and it is less risky, politically and economically, to send the Shtokman gas to Europe. “The margin on economics between sending to the U.S. versus Europe was narrow to begin with, and they may be scared off somewhat by the decrease in prices here. There is lots of gas up there, and Shtokman gas going to Europe frees up other LNG to come here, all else being equal.”
Looking at the LNG numbers worldwide, Thumb said EVA counts 93 new liquefaction projects announced since 1999 worldwide with potential capacity of 69.1 Bcf/d. About 70% of these, or 49.7 Bcf/d, might be completed, 34.1 Bcf/d by 2010 and 15.6 Bcf/d thereafter. These figures do not count the now-scrapped Shtokman LNG project. Including Shtokman would have raised the 49.7 Bcf/d capacity figure to about 52 Bcf/d. While by itself the project is enormous, in the big picture, “it’s important but not a shockwave,” Thumb said.
However, the decision also raises questions about Gazprom’s efforts to develop a North American natural gas marketing and trading operation on the back of LNG supplies (see Daily GPI, Aug. 21).
In August, John Hattenberger, managing director of newly established Gazprom Marketing and Trading USA Inc. (GMT USA), an offshoot of British group Gazprom Marketing and Trading Ltd., told NGI that Shtokman will come on in three phases with the first in 2011 producing about 1.8 Bcf/d, of which Gazprom will own about half. Most if not all of that gas was slated for the United States, along with a helping from the Baltic, Hattenberger said at the time.
Hattenberger could not be reached Monday for comment on the Shtokman decision. In August he told NGI that GMT USA had opted to acquire regas terminal capacity in North America rather than build its own. The company had been in discussions with a number of regas terminal owners/developers and was down to a short list from an original roster of about 50.
Sempra Energy has been in negotiations to market some of Gazprom’s production as well as provide LNG receipt terminal capacity at one or more of its three projects: Cameron LNG in Lake Charles, LA; Energia Costa Azul along the North Baja Pacific Coast in Mexico; and Port Arthur, TX, which has yet to commence construction (see Daily GPI, Sept. 7). A Sempra Energy spokesman said the company had not heard directly from Gazprom. “We don’t really know what today’s announcement means. We read the news, too,” said spokesman Doug Kline.
The proposed Gros-Cacouna regas terminal in Quebec, a project of Petro-Canada and TransCanada Corp., also has been in talks with Gazprom, and the Russian company has been working on preliminary engineering and cost studies with Petro-Canada on a still-planned Baltic Sea liquefaction terminal. Exports would go to the Gros-Cacouna regasification terminal (see Daily GPI, March 15). Gazprom also has been on the lips of Freeport-McMoRan Energy, developer of the Main Pass Energy Hub offshore Louisiana (see Daily GPI, Jan. 6).
Petro-Canada spokesman Rod Thornton said he and his countrymen were celebrating Canadian Thanksgiving Monday and would be able to comment Tuesday. Freeport-McMoRan Energy did not immediately return a call seeking comment. A ConocoPhillips spokesman told NGI that the company did not have a comment. Chevron could not be reached by press time.
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