Offshore projects put on ice

Shtokman project has been frozen, as well as Prirazlomnoye field development, which also has shelved. At the same time, two Russian major companies - Gazprom and Rosneft have entered into a cooperation agreement for shelf deposits development. And analysts said Russia will never give up its offshore projects development.

Moving north, ‘without haste’

The country’s transport industry has made big bets on offshore development projects. Because it involves the creation of coastal infrastructure, port expansion, development shipping, which entail building of new shipyards and upgrading of existing ones. Meanwhile, offshore production of hydrocarbons, namely in the Arctic is a very hard and capital-intensive task. To endeavor to do this is possible only under three conditions: when one is running out of raw materials in the more accessible areas, the need of geopolitical necessity, let alone huge funds and resources. The first two conditions have actually been formed: it is vital for Russia to commence the hydrocarbon extraction from new fields in view of the exhaustion of the old ones. The increased rivalry between superpowers for the Arctic makes it necessary from a geopolitical point of view, to develop and explore the region as soon as possible. On the other hand, gas condensate deposits on the Yamal Peninsula have helped ease the problem of resources depletion. It was not by chance, that "Yamal LNG" project became a priority.

As to Shtokman project it is the largest, but the most expensive one as well. By proven reserves of natural gas the deposit is by far one of the largest in the world. Geological reserves are estimated at 3.9 trillion cubic meters of gas and about 56 million tons of gas condensate. The Shtokman field development program encompasses the entire cycle of field development, from research to processing and transportation, and consists of three phases. Phase 1 of field development will provide an annual production of 23.7 billion cu.m. of natural gas a year. The problem is that gas will be extracted from a depth of 340 m, 550 km offshore, in extreme weather conditions with the annual temperature ranging from -50 to +33 ° C, wave height up to 27 m, in the kingdom of icebergs, some weighing up to 4 million tons. The project envisages the creation of coastal logistics base near Teriberka and construction of a fleet of Arctic class tankers.

To raise funds and get technology for the project, which requires huge investments, Russian welcomed France's Total and Norway's Statoil to join the project. However, in the first half of August, Statoil announced it would pull out of the project (albeit with reservations about the fundamental interest in it in the future). In late August it was announced that the project itself was put on ice for an indefinite period.

Gazprom also canceled another offshore project for development Prirazlomnoye field, which known oil reserves are estimated at 72 million tons, to produce 6.6 million tons a year. The reason for the move was reports the project implementation does not guarantee environmental safety from possible oil spills.

Nordic fate
Meanwhile, Russia continues to demonstrate the fundamental interest in the development of the shelf, in spite of all the difficulties. Gazprom said it continues talks on the Shtokman project.

Moreover, Gazprom and Rosneft have signed recently an agreement on joint development of the shelf, Gazprom and Summa – on the creation of infrastructure for supply of liquefied natural gas (LNG) to ships in the North Seas.

Russian shipbuilding is also focused on offshore fields development. United Shipbuilding Corporation (USC) has announced its plans to build Kotlin shipyard (St. Petersburg), which would specialize in the Arctic-class ships construction as well as the Far East shipbuilding companies.

A leading expert of Finam Management said that eventually, Shtokman project will be implemented. Dmitry Baranov noted that the Norwegian and the French companies are still interested in the project and in further cooperation with Gazprom. Most likely, the pool of investors will not change, but may have one more foreign investor, which would be the most viable option for all parties involved. Dmitry Baranov is sure that the project was shelved because it is aimed at the future markets, not to compete with Yamal LNG or shale gas projects.

As Nikolai Podlevskikh, head of analytical department of ZERICH Capital Management said that attractiveness and large proven resources, the preparatory work done, the prepared project and the growing readiness to develop the deposit suggests that Shtokman will continue developing.

"Yes, first we will be spending a lot of money, as the project of this scale can be implemented only gradually,” Dmitry Baranov said.
“But then, when oil and gas production at the Arctic shelf begins, this investment will pay off."

So, Russia slowly, but continues to develop the northern fields. The Yamal LNG and Prirazlomnoye development have started and no one has so far pulled out completely from Stockman project.
Vitaly Chernov.