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The Wall Street Journal: Total’s Key to Russia Is LNG

Oil Company Hopes
To Join With Gazprom
On $20 Billion Project

August 31, 2006

PARIS — Total SA, one of the few oil majors without a significant presence in Russia, is looking to the Shtokman liquefied-natural-gas project to help it catch up to its peers.

Menno Grouvel, Total’s senior vice president for continental Europe and central Asia, said that after missing out on opportunities in post-Communist Russia, Total now hopes Shtokman will provide a way into one of the richest countries in terms of natural resources.

Total was shortlisted in June 2005 to work with OAO Gazprom on the €15 billion, or roughly $20 billion, Shtokman LNG project. The massive gas field in the Barents Sea holds an estimated 3.6 trillion cubic meters of natural gas, enough to supply all of U.S. gas needs for more than five years at current consumption rates, according to a 2006 report from BP PLC.

Chevron Corp. and ConocoPhillips of the U.S., and Norway’s Statoil ASA and Norsk Hydro ASA also have been shortlisted, and Russian Energy and Industry Minister Viktor Khristenko has said a decision could be made in October.

State monopoly Gazprom, the world’s biggest gas producer and exporter of natural gas, plans to use the project to help position itself as a major LNG player in the coming years.

Natural gas, once chilled to a liquid, can be stored on tankers and shipped anywhere. Otherwise, it must be sent via pipeline. Gazprom, which doesn’t produce liquefied natural gas and whose principle export market is Europe via pipelines, hopes to use Shtokman LNG exports as a springboard into North American markets.

The French oil company is hopeful it will be one of the two or three partners Gazprom will choose for Shtokman, said Mr. Grouvel, and is looking for a 20% interest in the project, which is expected to go online in 2012. That would mean a €3 billion investment over six years in the project for Total, Mr. Grouvel said. The company invests around €10 billion a year for all of its projects, he said.

He said when Total put itself up for consideration as a partner, it emphasized its “offshore expertise” — 70% of the company’s portfolio is offshore.

In return for its involvement in Shtokman, Total has said it would invite Gazprom to take part in three of its own projects. Mr. Grouvel declined to detail the asset swaps, a critical element in Gazprom’s decision.

During the past decade Total has found itself playing catch-up with other oil majors. BP has had a presence in Russia since 2003 through a 50% stake in TNK-BP Holdings, its joint venture with Russian investors that has licenses to develop substantial natural-gas deposits in Russia, notably the giant Kovykta field in eastern Siberia. Companies such as Royal Dutch Shell PLC, Exxon Mobil Corp. and Chevron also positioned themselves well and early for the high demand for foreign funding that occurred in the post-Communist era.

Total and Elf, which merged in 2000 to form what is now the world’s sixth-biggest oil company by market capitalization, weren’t big oil majors at the time, Mr. Grouvel said, and in 2005 Total faced a major setback when Russian regulators blocked the group’s attempt to buy a 25%, $1 billion stake in Russian oil company Novatek.

“It was too late. The window of opportunity had been shut,” Mr. Grouvel said. “Total is now one of the very few oil majors without big assets in Russia.”

Total, nevertheless, signed a production-sharing agreement in 1995 for operating the Kharyaga oil field in the Nenets region of Russia, north of the Arctic Circle. But after production started in 1999, Total faced regular criticism from the local government, and was accused of not fulfilling the terms of its contract. That seems to have abated, Mr. Grouvel said, with the field producing normally. Kharyaga, which is the only asset Total owns in Russia, produces 9,000 barrels of oil equivalent a day. The group’s total output is about 2.3 million barrels a day.

Russia is a tough environment in which to evolve as a foreign investor, but there is significant upside, Mr. Grouvel said. The country will have to rely more on foreign funds to meet its investment needs in the energy sector, as it works to renew its hydrocarbon production and reserves, as well as in other industries, Mr. Grouvel said. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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