In advance of whatever liquefied natural gas (LNG) supplies it might send to the United States from the vast Shtokman gas field in the Barents Sea, Russia is sending mixed signals.
Last Monday, state-controlled gas titan Gazprom spurned the five international companies that had been jockeying to help it develop the field with the announcement that the company would go it alone and send most or all of the gas production to Europe via pipeline instead of to the States in the form of LNG as had been previously planned (see NGI, Aug. 21). But one day after Gazprom CEO Alexei Miller broke the news on Russian television, Russian President Vladimir Putin reopened the door to foreign involvement in the project and exports of LNG to North America.
“Russia has decided to develop this field independently,” Reuters quoted Putin saying following a meeting Tuesday with German Chancellor Angela Merkel. “We will be the sole subsoil user and owner of the field, but we do not rule out inviting foreign companies for joint work on development or doing part of the gas liquefaction process and marketing it in third countries.”
Even if Gazprom doesn’t send any LNG to the United States, it will have little effect on domestic markets as Russian supplies sent to Europe will only back out other cargoes for potential delivery to North America, some analysts told NGI.
Nevertheless, the apparent decision to at least partially shut them out of the $20 billion project is obviously a disappointment to potential partners in the Shtokman field: ConocoPhillips, Chevron, France’s Total, Norway’s Statoil, and Norsk Hydro. Last week, though, the Norwegians were apparently optimistic of a future role.
“…[B]ased on the fact that over the last 30 years Norway has developed the capacity for working in these waters, I believe they [Norwegian firms] still have valid experience,” Norwegian Foreign Minister Jonas Gahr Stoere told Reuters.
It remains to be seen whether Gazprom’s move will hinder the plans of some U.S. LNG terminal developers whose projects could receive LNG from Shtokman.
Last month 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 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 NGI, 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.”
Meanwhile, last week Standard & Poor’s Ratings Services made note of improving gas markets in Russia, the former Soviet Union and Europe when it upgraded debt ratings on Gazprom to “BBB-” from “BB+.”
“The upgrade of Gazprom reflects the increasingly favorable pricing environment for both domestic gas sales and for exports to the former Soviet Union and Europe,” said S&P credit analyst Elena Anankina. “Indeed, the pricing environment has improved to the extent that Gazprom should in 2006 see evidence of strong free cash flow for the first time.”
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 uncertainty at least raises questions about Gazprom’s efforts to develop a North American natural gas marketing and trading operation on the back of LNG supplies (see NGI, 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 last week did not return requests for comment on the Shtokman announcement. 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. A Sempra Energy spokesman said the company had not heard directly from Gazprom about Shtokman plans.
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 NGI, March 20). Gazprom also has been on the lips of Freeport-McMoRan Energy, developer of the Main Pass Energy Hub offshore Louisiana (see NGI, Jan. 9).
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