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New York Times: Gazprom Intends to Develop Huge Gas Field on Its Own

Published: October 10, 2006

MOSCOW, Oct. 9 — Gazprom, Russia’s natural gas monopoly, abruptly broke off talks Monday with five international companies bidding for a stake in an offshore field in Russia, canceling the largest energy deal involving foreigners expected here this year.

Gazprom’s chief executive, Aleksei B. Miller, said his company would wrest natural gas from the challenging field without foreign help — though energy analysts were skeptical — and retain full ownership of a gas deposit that is one of the world’s largest untapped sources of energy.

Deep under the Barents Sea, the Shtokman field holds 3.7 trillion cubic meters of gas and 31 million metric tons of gas condensate, or enough gas to supply the entire world for a year. At full production, it would produce the equivalent of one-tenth of the total United States demand for natural gas.

Under the initial plan, the project was to come online in 2010. Monday’s announcement will probably push back by years the first shipments of gas, analysts said. Mr. Miller’s decision to cancel the venture, one of the largest outside of the Middle East, was emblematic of the rapidly worsening relations between Russia and Western energy companies.

Already this month, Russia has held up an oil tanker shipment from Exxon Mobil’s $17 billion Sakhalin 1 development and has threatened to revoke an environmental permit for Royal Dutch Shell’s $20 billion Sakhalin 2 project, both on Sakhalin Island north of Japan. Regulators have pressured BP and Chevron elsewhere in Russia, in what is seen as a general squeeze on the foreign oil operators.

In the joint venture canceled Monday, Chevron and ConocoPhillips of the United States, Statoil and Norsk Hydro of Norway and Total of France were bidding for up to 49 percent of the $20 billion Shtokman field.

“The foreign oil companies are getting shut out in the great game of reserves,” said James R. Fenkner, a managing partner at Red Star Asset Management.

The Shtokman field, over the years, became entwined in larger issues involving energy policy in Russia, and cancellation of the venture was seen as a dismal sign for cooperation between the West and Moscow.

It was the centerpiece of a continuing effort by the Bush administration to encourage direct Russian oil and natural gas shipments to the United States, as a method of diversifying supplies away from the Middle East.

The talks have gone on for years, and were sometimes seen as linked with Russia’s bid to join the World Trade Organization. According to this analysis, if the United States blocked Russia’s entry, American companies would be cut out of the big energy deal.

Output from the field was to be cooled into liquefied natural gas and then shipped to the East Coast of the United States, where it could be converted to gas. Mr. Miller made clear Monday that that prospect would be delayed, perhaps indefinitely. He said the gas would be shipped to Germany instead, through a pipeline under the Baltic Sea.

“We don’t exclude the possibility of making L.N.G., but the priority will be pipeline gas,” a Gazprom spokesman, Sergei V. Kupriyanov, said in a telephone interview.

It was unclear Monday whether a breakdown in the talks or the generally chilly political relations between the United States and Russia were to blame for the cancellation. Some analysts say the companies had roughed out the terms of an agreement months ago, and were held up as Moscow and Washington used the deal as a bargaining chip in wider talks, over the W.T.O., for example.

In the Shtokman deal the foreign companies had been expected to swap some assets elsewhere in the world for a chance to take part in the Arctic venture. What the companies put up in exchange was a closely held secret. One lawyer familiar with the talks said one of the Western companies had wagered an oil field on the Gulf Coast of the United States for a stake in Shtokman.

In a terse statement, Mr. Miller of Gazprom spoke dismissively of what the Western companies offered.

They “were unable to provide assets comparable to the volume and quality of reserves in the Shtokman deposit,” he said.

Chevron said in a statement it had not been notified the deal was off.

“Chevron has great respect for Gazprom and its capabilities,” the statement said. “Chevron is honored to be on the short list for the Shtokman project, which we continue to consider to be one of the most complex and challenging energy projects in the world.”

The huge field is technically challenging. The site, far above the Arctic Circle, is dark six months of the year and subject to fierce winds and storms. Platforms would need to be impervious to icebergs. And once extracted, the gas would travel about 340 miles by undersea pipeline to Russia’s northern coast.

The field was discovered in 1988. It had been widely assumed that Russia lacked the offshore engineering technology to develop it without foreign help.

While the field would have bolstered the reserves on the books of the foreign bidders, the companies also may have narrowly escaped entering Russia just as the political climate was souring for foreign oil companies. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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