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Petroleum News: Barents bargaining chip?

U.S, Russia trade political shots; Gazprom again delays Shtokman gas project

Ray Tyson

Russia appears to be using its giant Shtokman gas project in the Barents Sea as a bargaining chip to gain U.S. support for its bid to become a member of the World Trade Organization. Caught in the middle of the brouhaha are Shtokman hopefuls and U.S.-based majors ConocoPhillips and Chevron.

ConocoPhillips and Chevron were said to be on the short list of companies being considered to partner up on Shtokman with Russia’s gas monopoly Gazprom. The project includes field development and construction of a gas liquefaction terminal in northern Russia. Other contenders for the Shtokman job are Norway’s Statoil and Norsk Hydro and France’s Total.

However, just as some industry analysts had predicted, Gazprom in May again delayed naming the Shtokman winners until August. The estimated $20 billion project has been on the table for more than a decade, and forecasts for field startup have ranged from 2011 to 2015 to as late as 2020. Shtokman has estimated gas reserves of 110 trillion cubic feet. Just prior to the latest announced delay, analysts had speculated Russia might postpone the massive project due to the high cost of Arctic development or due to political infighting over Shtokman taxes. Another theory had Russia deliberately holding back development to drive up natural gas prices on the world market.

More political wrinkles

There are a few more political wrinkles to this story: the allegation Russia is holding Shtokman hostage over the WTO issue and harsh remarks made in early May by U.S. Vice President Dick Cheney that Russia was playing energy politics with its neighbors.

Russia was widely criticized earlier this year when it briefly halted gas exports to Ukraine in a price dispute that disrupted supplies to Europe. Moscow also warned Europe that Gazprom could divert supplies to Asia if it was barred from the European market.

Cheney’s remarks came at about the same time Gazprom planned to announce the Shtokman winner or winners and could have put U.S. contenders ConocoPhillips and Chevron at a disadvantage, analysts speculated. Cheney, speaking in the Lithuanian capital Vilnius, called on Russia to return to the path of democratic reform and accused its leaders of using oil and gas as tools of “intimidation and blackmail” against other countries.

The Kremlin said May 18 that any attempts to “discriminate” against Moscow in its negotiations to join the WTO would bring tougher terms for foreign companies seeking access to Russian markets — a policy some analysts think could affect U.S. oil companies hoping to develop the massive Shtokman field.

“In general, if you discriminate against us in the World Trade Organization, you can’t expect us to welcome you with open arms,” Kremlin spokesman Dmitry Peskov said, according to Dow Jones Newswires.

However, Peskov denied that the Kremlin was making a direct link between American companies’ potential participation in the multi-billion-dollar development of the Shtokman gas field and talks with the United States on Russia’s WTO entry. The statement was intended to reflect Kremlin policy “in general,” he insisted.

Relations have chilled

Nevertheless, there’s no question ties between Moscow and Washington have chilled since the Sept. 11 attacks on the United States, amid differences over Iran, the war in Iraq and competition for allies in the former Soviet Union.
Representatives for Statoil and ConocoPhillips, in May 23 comments at the UBS Global Oil & Gas Conference in Austin, Texas, largely skirted U.S.-Russia disagreements and focused on what their companies would bring to the Shtokman gas project.

“We think we provide a lot of technical expertise both on the upstream and liquefaction side,” Jeff Lowe, vice president in charge of ConocoPhillips’ commercial division, said, noting that ConocoPhillips already holds a stake in Lukoil, Russia’s largest oil producer.

However, in addition to expertise, Gazprom “has made it fairly clear” what it wants in the way of a U.S. partner, Lowe said.

“They would really like to have access to U.S. markets as an outlet for the gas … and we’re the number two gas marketer in North America,” he added. “They are looking for a way to participate in assets outside of Russia to give them an international presence. And we are prepared to do something with them on that. And they are also looking for value.”

Statoil may be best positioned

Norway’s Statoil, with its huge Snohvit gas development in the Norwegian sector of the Barents Sea, is perhaps the best positioned of the five applicants to participate in Russia’s Shtokman project.
“Because of the proximity in Norway and the rest of our operations in the area, we would like to take a leading role in development,” Geir Bjonstad, Statoil’s vice president of investor relations, said at the UBS conference.

Bjonstad also made it clear that Statoil is in no rush to join the Shtokman project and its huge $20 billion price tag. And he said Statoil has “substitute” plans in the event the company’s bid to join the Shtokman project is turned down.

“I would say that Shtokman is not something that we have to do, but it’s very interesting because of the size,” Bjonstad said. “There are other opportunities in Russia that we will be interested in (and) we’re looking at other energy development opportunities around the world.”


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