May 25 (Bloomberg) -- OAO Gazprom, Russia’s natural gas exporter, may seek to include Royal Dutch Shell Plc in its project to tap the Arctic Shtokman deposit as it focuses on plans to produce liquefied natural gas for tanker transit instead of using pipelines.
“We are considering adding new partners to the project,” Gazprom Chief Executive Officer Alexei Miller said outside Moscow after a meeting today at Russian President Vladimir Putin’s residence. “We already work with Shell on a different LNG project.”
Gazprom favors changing the project plans so that it mainly produces LNG instead of gas for delivery by pipeline, Miller said. The sole exception would be providing 1.7 billion cubic meters a year to the local Murmansk region, he said.
The Shtokman gas development, a venture between Statoil ASA, Moscow-based Gazprom and France’s Total SA, has stalled as the partners repeatedly postpone a final investment decision amid rising costs and waning demand. Putin, meeting with Statoil CEO Helge Lund today, pressed the Norwegian company to move ahead with an investment decision.
Statoil may exit the project because of development terms and be replaced by Shell, the Russian newspaper Kommersant reported today, citing people familiar with the talks.
By entering Shtokman, Shell would boost its presence in Russia, where it’s already a partner with Gazprom at the Sakhalin Energy liquefied natural gas development in the Far East. State-run oil company OAO Rosneft has agreed on alliances with Exxon Mobil Corp., Eni SpA and Statoil the past two months.
“Shell is successfully cooperating with Gazprom in the LNG sector on Sakhalin-2, and we have always welcomed an opportunity to broaden this cooperation to other projects,” a London-based Shell spokesman who declined to be identified said. “We cannot comment further at this stage.”
Statoil said today that it wouldn’t comment on reports it may be replaced by Shell in the project.
Dubbed a “super-giant” by one of the scientists who found it, Shtokman challenges development. It is almost 600 kilometers (370 miles) from shore in the Barents Sea, where icebergs make the waters treacherous and temperatures fall as low as minus 50 degrees Celsius (minus 58 Fahrenheit). Its 3.9 trillion cubic meters of gas reserves are enough to supply the world for more than a year.
Putin pledged to provide the project additional tax incentives, if needed, Miller told reporters. The project partners have pushed for tax breaks before they can commit to the investment decision.
Statoil will seek to make progress with Gazprom by next month, when Russia holds its economic forum in St. Petersburg, on work to development ideas for LNG, Lund said at the meeting with Putin.
“We are working hard to optimize the development concept and have a good dialogue with Gazprom on that,” Lund said.
Gazprom targets to sign an agreement on new terms for Shtokman, such as a focus on LNG, at the St. Petersburg International Economic Forum next month, Miller told reporters.
Gazprom signed agreements on the development with Total and Statoil in 2007 and created the Shtokman Development AG operating company in 2008, most recently intending to start piped gas shipments from Shtokman in 2016, and LNG exports a year later. Amendments to the accords have since been proposed, including liquefying all the gas extracted, Total Chief Financial Officer Patrick de la Chevardiere said on April 27.
The partnership must cut costs by at least 10 percent to make the project feasible, Statoil Executive Vice President Peter Mellbye this month told the Russian state television channel RT. The partners haven’t disclosed current project cost estimates, previously given as $20 billion to $40 billion.
Shtokman Development is 51 percent owned by Gazprom, while Total owns 25 percent and Statoil 24 percent.
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