November 20, 2008
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Home / Issue Archive / 2006 / December #12 / Editor's Letter

№ 12 (December 2006)

Editor's Letter

What Poetry and Gas Production Have in Common

Pat Davis Szymczak

I'm often told by Russians that there is no such thing as a "done deal." When negotiating (po russky) you may think you've closed on a point and moved on to the next. Your adversary however sees each decision as an opportunity to open a new negotiation. Westerners negotiate in a straight line. Russians seem to go in circles (from a Western point of view.)

That's why I thought nothing of it when a few months ago Russia's natural gas monopoly Gazprom announced that it had decided to "go it alone" on the development of the giant offshore Shtokman gas and condensate field. "When pigs fly," I told our advertising sales office in Paris when they called, horrified at the prospect that Total, Statoil and Hydro were now shut off Russia and would never again buy any advertising in Russia.

I admit that my linear mind was seduced by an article in the Financial Times which offered a rational explanation for Gazprom's surprising announcement. The FT pointed out that Gazprom is having difficulty filling domestic demand and that rather than sell Shtokman gas as LNG to the United States, Gazprom had made a strategic decision to supply the domestic market and supplement exports to Europe from the Barents Sea.

With Shtokman, What's LNG Got to Do With It?

All of that made sense until this month: Gazprom announced it had reconsidered and would indeed entertain the thought of taking on foreign partners in Shtokman. Maybe the FT hadn't taken into account that LNG exports or no LNG exports, Shtokman is too complex and expensive a project for any one company to go it alone. And today, another shoe dropped (notice I said "another" and not "the other" ... think about it!)

So, I'm putting up the Christmas tree and I get another call from Paris. The news this time: Statoil and Hydro are merging and the rumor is that some of the push for this came from Russia. "It's related to Shtokman," I say. And here I go, abandoning all logic, all of my Cartesian genetics and I become the poet. I actually quote Fyodor Ivanovich Tyutchev who in the 19th century wrote in effect that you cannot understand Russia, "in Russia you can only believe." (Believe it or not, most of my Russian office can recite the poem from memory. They do the same with Pushkin. How many Americans know Walt Whitman by heart? How many young Brits know John Keats?)

You see, long before Gazprom made its last "go it alone" announcement, there was a lot of gossip going around Moscow about Gazprom having told their prospective foreign partners - Statoil, Hydro, ConocoPhillips, Chevron and Total - that Gazprom would sign a deal with only three foreign "entities." Thus, it was widely believed that Hydro and Statoil would form a single Norwegian company, ConocoPhillips and Chevron would do the same to create a single US player, and Total would represent the French.

So as I see it, the Statoil-Hydro merger positions the Norwegians for work in Shtokman. The combined company will have a presence in 40 countries and the muscle to work anywhere it wants. But remember that Norwegians are famous for developing technology for working offshore in the cold and harsh conditions of the North Sea. You find more ice in Norway than you find palm trees (the latter are all indoors in big pots). So, it is likely (linear thinking again, I can't help it) that the new Statoil-Hydro company will undoubtedly carry the banner on adapting new technologies applied in the North Sea to even harsher conditions in the Russian Arctic. Don't forget that it is estimated that two-thirds of the world's undiscovered offshore oil and gas lies above the Arctic Circle and in particular, in Russia.

So that leaves the Americans. Sorry guys but I don't believe for a minute that Russia won't ever ship LNG from Shtokman to the United States. I wouldn't be surprised if Shtokman didn't in the end supply gas to domestic Russian customers, supplement European gas supplies and ship LNG across the Atlantic. For that, Russia will need a US partner - or will it? Gazprom has often pointed out that Statoil does have capacity at the Cove Point LNG terminal on the US East Coast. Is it enough? Or what may be the final resolution of Gazprom's negotiations with Shell in Sakhalin?

Another Russian colleague once told me that by the time Gazprom is finished, "everyone" - whatever that means - will be working in some capacity at Shtokman. "They'll make it one big 'kholhoz' (Soviet collective farm). Gazprom likes big!" Maybe so, but we'll have to wait and watch. I'd also recommend that if you want to work in Russia, even at arms length, you'll have to become a poet. Lesson No. 1 - memorize Tyutchev and repeat it to yourself the next time your negotiations seem to have started to move in circles.

Russia is a thing of which
the intellect cannot conceive.
Her's is no common yardstick.
You measure her uniquely:
in Russia you believe!

- Fyodor Ivanovich Tyutchev (November, 1866).

There will be much more, "believe it or not" in the New Year!

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