Gazprom U-Turn on Shtokman Investors

December 5, 2012

It's official: Gazprom will take on more partners in its Shtokman project.

Despite ongoing rumours to the contrary, Gazprom had as recently as last week made a series of statements claiming it was happy with the French company Total as its sole partner in the Barents Sea liquefied natural gas (LNG) project. However, in an apparent u-turn on its previous official line, Reuters reported on Monday that Gazprom chairman and Russian First Deputy Prime Minister Dmitry Medvedev had finally acknowledged Gazprom was likely to invite more foreign investors to take a piece of one of the richest natural gas fields in the World.

“I think that co-participation in this project makes sense for Gazprom,” said Medvedev at Monday’s Reuters quoted press briefing.  “It could be either our partners join the project as fully fledged participants in the equity of a joint company, or as contractors which in my view could create less stability in relations.”

With both options still on the table, Gazprom, which is in control of 51% of Shtokman, has already brought in French oil and gas company Total as an equity partner, announcing the deal giving Total a 25% stake on July 13th, but tantalisingly leaving another 24 percent for further partners.

Our analysts have long believed this 24 percent would need to be filled if Gazprom was to realize the full potential of its Shtokman vision, given its tight 2013 deadline for bringing the scheme online and its announcement last week that it will cut its investment budget for the project by more than half.

Medvedev admitted as much to RIA Novosti on Friday, saying, “it is better for the costs, risks and profits to be shared with partners who are materially and technologically ready to play a role in the project', and 'the list of potential players is short because we should be looking at large companies well-known in the market.”

There are only two realistic contenders based on those criteria. The first is ConocoPhillips, whose CEO, James Mulva, was quoted in the Barents Observer as saying the American energy corporation were in "continued negotiations with [Gazprom]' and, 'we might take part in the project.' Crucially, notwithstanding investment capital, ConocoPhillips offers major-league marketing clout and distribution access the US -- the only realistic destination for the LNG to be produced by the Shtokman field -- and it remains a strong likelihood that they will be involved in some capacity.

Eivind Reiten, CEO of Norsk Hydro, has, in unison with his ConocoPhillips counterpart, claimed his company is still very much in the running for Shotkman partnership. He was quoted last week in the Financial Times as saying "We are in continued dialogue with Gazprom. We are closely interested in taking a share if the conditions are right". Norsk Hydro will, by October of this year, have completed its merger with Statoil, which recently successfully completed its drilling of the Barents Sea Snøhvit field in conditions similar to those to be experienced during the Shtokman project. It