Yuri BANKO

The visit of the Prime Minister of RF Vladimir Putin dispersed all the doubts concerning the plans of the development of Shtokman project. Gas will be produced, the construction of offshore and on-shore facilities and gas supply to consumers through the pipeline Teriberka-Volhov are expected to be carried out in the future.

Shtokman development project is of strategic significance for Gazprom. The field will become a resource base for Russian pipeline gas as well as liquefied natural gas (LNG) exports to the Atlantic Basin markets.

Most of the predictions tell that the world demand for gas will increase and that by 2015 it will be so high that even the increase of gas production in Russia won't satisfy the quantity of demand. That is why all the producers are searching for new sources, taking into their consideration all the possible variants: condensed gas and pipeline gas export. The volume of gas production will increase and it will be in demand.

Putin set the record straight

During the visit to Murmansk, the Prime Minister announced that the development of Shtokman field would start in a year. "Nobody called off the implementation of the project. In the spring time of the next year an investment decision will be made and after that, the operations will start", - said V. Putin on the meeting with the governor of Murmansk region Dmitry Dmitrienko.

Putin emphasized that preliminary works hadn't been stopped. "Of course, we will need some years to put this field on production, create infrastructure, but we have to do that", - added the Prime Minister.

According to V. Putin, the question of gas production in the Murmansk region can be solved only after putting Shtokman filed on production.
"Murmansk region has to develop its gas production, but, in fact, such projects have a long-lasting character and this question will be solved only after the development of Shtokman field", - he said.

Meanwhile, the head of the Energy Department Sergey Shmatko in Algeria said that the delay in the development of Shtokman field won't influence negatively the status of Russia on the gas market."

Earlier the operator of Shtokman project - Shtokman Development AG, stated that the beginning of the production of piped and condensed gas within the framework of the project can be postponed for three years. Later the Ministry for the Protection of the Environment and Natural Resources of the RF reported that Russia has lost the market of North America to realize gas sales there and in the future can prejudice its positions on the European market.

The head of the Energy Department do not consider the delay in the development of Shtokman filed to be a wrong decision that can influence the position of Russia on the LNG market. In addition to that, the Minister emphasized that it is a priority of Russia to start the development of Shtokman filed in the near future as Russia has already invested a lot of money resources into this project.

Gazprom Dobycha Shelf holds the license to search for, explore, and produce gas and condensate from the Shtokman field (the former name of the company is Sevmorneftegaz, a 100 per cent subsidiary of Gazprom). The implementation of the second and the third phases of the project will be carried out by Gazprom Dobycha Shelf which is also a 100 per cent subsidiary of Gazprom. Gazprom partners in the development of Shtokman field are Total (France) and Statoil (Norway).

Meanwhile, Yuri Komarov leaves the position of the chief executive officer of Shtokman Development AG, the operator of the first phase of the Shtokman field development. He has held that position since 2008. One of the major reasons influenced the resignation of Komarov was his discontent with the project engineering of the first stage of Shtokman. The head of Shtokman Development AG spoke in support of the engineering solutions of Total and didn't work out the alternative variants which had been offered by the specialists of Gazprom Dobycha Shelf. Shtokman Development AG at the suggestion of Total carried over for consideration of shareholders an idea to supply raw products produced during the first phase through the 600 km pipe to the shore, after that, to produce condensate and to carry out gas dewatering and the final gas conditioning for supply to Gazprom system. Gazprom Dobycha Shelf sharply criticized that method, maintaining that the distance for nonpurified gas transportation was too long and that there was a risk of pipe blocking. Specialists insisted on evaluating of the economic effectiveness of a complex construction which would prepare gas for the transportation on a special floating platform in the sea (the shipment of condensate will be carried out from this platform also), and after that, they offered to transport dry gas through the submerged pipeline to the shore. By the reason of these contradictions, the final investment decision has been postponed on March of 2011.

Firstly, is piped gas, secondly - LNG

It was the director of a French company Total Christophe de Margerie who brought into the challenge the timing of the Shtokman field development. On the world gas conference in Argentina, he said that "it is unlikely that we will start gas production earlier that in 2015-2016". In the first half of 2010 Gazprom, Total and StatoilHydro are the development partners of this project which have to make an investment decision, fix the timing of the beginning of the operation and put into the operation facilities to carry out gas supply through the pipeline Teriberka-Volhov and the production of compressed natural gas.

It was reported that in February 5, 2010 the board of directors of Shtokman Development AG made a decision to create a special stage within the framework of the first phase to construct start-up facilities for supply piped gas such as a sea production complex, a pipeline to the shore and a special installation for gas conditioning. A final investment decision concerning the production of piped gas is going to be reached on March, 2011 and concerning the production of LNG - till the end of the year.

According to the shareholders of the company, this approach will allow to start gas production for supply through the pipeline in 2016 and to start production of LNG in 2017.

During the First International Economic Forum in Murmansk in October 15-16, 2010, Alexey Miller, the chairman of the board of directors of Gazprom, Yuri Komarov, the chief executive officer of Shtokman Development AG, Pierre Nergararyan, the general director of Total E&P Russia and Bengt Lie Hansen, the chief representative of Statoil Hydro in Russia affirmed that the development of the project would start, however, they presented an another timing of the project implementation on MEF: gas supply had to begin in 2013, LNG supply - in 2014.
A project feasibility study up to international (FEED) and Russian standards, a preliminary state expertise review of sea facilities and a risk assessment proved that "the project is technically implemented".

Shale gas is not an obstacle to Shtokman

The main reason of postponing an official decision concerning the timing of the Shtokman project implementation was the situation on the compressed natural gas market in the USA, where it has been expected to supply gas produced during the first phase of Shtokman. According to the American statistics, the average price for gas slumped from $350 for thousand cubic meters in 2008 to $160 last year, while, the import of gas decreased twice and still there is no any positive dynamics. One of the suggestions tells that blue fuel consumption in the USA is influenced by the situation with shale gas. However, Yuri Trutnev, the Minister of Natural Resources and Ecology believes that shale gas can't compete with natural gas.

"I do not think that shale gas will be able to compete with natural one. There is a perspective of changes on the market because of the production of shale gas, but we will talk seriously about it when a necessary estimating concerning the production and the price parameters will be carried out", - he said. The production of shale gas comes expensive. That is why Barack Obama announced the decision to give a permission to produce oil on an American shelf. If the idea of Obama gets an approbation of parliament, oilfield workers and gas workers will be allowed to start production on earlier locked areas of the Atlantic Ocean, Mexican bay and the Pacific Ocean near Alaska. The American congress set a moratorium on oil and gas production on the 80% of a continental shelf in 1981. The aim of this ban is to save a strategic fuel reserve for future generations and to protect tourism and ecology. And therefore, Americans were ready to increase their dependence on other countries, even on foreign enemies. Now the priorities have changed.

The first commercial shale bore was made by the American pioneer of gas industry William Hart in 1821. However, the technology was too complicated and expensive. But in 2002 an American company Devon Energy could bring into life Hart's idea by producing remunerative shale gas from the horizontal borehole on the Barnett Shale deposit. Over the last eight years the volume of shale gas on the American market has reached 10%. It enabled the USA to take the leading position in the world in gas production, to get ahead of Russia and to stop practically all the gas import to the country. But it was America where it was expected to sell gas from the Shtokman filed.

In spite of this, Gazprom continues to be optimistic. The demand on gas in European Union and in Russia will increase. Gazprom considers that by 2020 the share of Gazprom on European market will reach 32%, gas supply -200 billion of cubic meters. Gazprom specialists pay their attention to the fact that the future of shale gas is not so rose-colored. Using modern technologies during the petro-fracturing, a lot of water with chemical agents should be injected into shale.

This brings up the question where to take such a quantity of water and how to clean it after. In addition to that, there is a risk of chemical agents' ingress into groundwater. For densely populated Europe this fact can become crucial to choose one among their energy priorities, in contradiction from the USA, where the density of population is lower and China which does not pay much attention to its ecology. Shale gas for Europe will become a backup variant among the raw material sources. Besides ecological problems, shale gas has another disadvantage: it should be bored a lot and frequently. Its debit decreases fast. The existence of the shale gas bore is 8-9 years (existence of traditional gas is over 30 years). After that, it becomes non-remunerative.

The deposit of hydrocarbon in shale has a lot of disadvantages. That is why a large number of experts have incredulous attitude to its perspectives. It is possible that shale gas will continue to be an American miracle. There are three reasons which prove this fact: first of all - imperfect technologies; secondly - ecology; thirdly - gas prices.

Gazprom and Shtokman Development AG don't scrap their plans

According to the experts, by 2020 the annual output of LNG production in the world will be 500 ml tons that corresponds to 700 billion cubic meters of gas. Russia can take one of the leading positions in this list having 10% of production in the world. Nearly 17 ml tons will be produced by the three Gazprom projects which are being successfully implemented at the moment - they are "Sahalin-2" and the first phase of Shtokman. Another extent of the production will be reached after the implementation of the second and the third phases of Shtokman and other projects producing LNG. Shtokman is the basis for further development of a Gazprom group on the world LNG market. The supply from the Shtokman field will provide the consolidation of the group position in the Atlantic region, and therefore will help Gazprom to become a global player on the world market.

Shtokman Development AG has already invested a lot of money resources into the exploration, which includes the exploration of the sea area of the project. From October 2007 till March of 2010 the total amount of investments into the development of the Shtokman field will be $800 ml. Alexey Miller, the chairman of the board of directors of Gazprom, taking his floor on the Economic Forum in Murmansk, told about the details of this unique project. During the first phase the production of gas will be 23,7 billion of cubic meters per year, or daily - 70 ml of gas cubic meters. The offshore part of the project will include 2 semi-submersible drilling platforms "Severnoe siyanie" and "Polyarnaya zvezda", which are being constructed on the shipbuilding yard in Vyborg. These platforms are specially designed for working in the severe climate conditions of the High North and can withstand waves of 32 meters high. They are also designed for carrying out an exploration and production drilling of gas and oil bores which can come up to be 7500 meters at a depth of 70-500 meters.

The construction of the first mobile floating drilling rig should be completed in the fourth quarter of the current year, the second one - in a year's time. The offshore part of the project includes a technological vessel for preparing gas for transportation, an underwater production unit and a twin pipeline.

Currently all the exploration works have been completed on the field, on the pipeline, on the near-shore area, on the place of construction of onshore facilities and on the route of gas pipeline laying to Volhov, the length of which is 1300 km. In case of making a positive decision concerning the construction of LNG factory in Teriberka area by 2020, a heat power-station with a capacity of 600 megawatt, a first part of LNG factory with a productivity rate of 7,5 ml tons of condensed gas per year, 2 containers with a capacity of 160 000 cubic meters for the storage of LNG, terminals for gas and gas condensate shipment protected by a breakwater, offices, repair stations, storehouses and fire station are expected to be constructed.
Shtokman Development AG plans to choose three general contractors to construct the gas liquefaction factory within the framework of the implementation of the Shtokman project as one constructor won't be able to cope with the volume of orders.

A lot of factors promote a successful implementation of the project. This is the existence of big gas resources that promotes stable and long-term supplies. It is important to know that there is an opportunity of supply diversification that means that it is possible to supply piped and compressed natural gas simultaneously to Europe and other destinations depending on market conditions. In such a case there is an opportunity to expand gas production and a quality of raw material can minimize preparation expenses. A developed infrastructure of Kola Peninsula promotes the developing of the project. One of the advantages of the project is a short distance between the raw material base and market outlets which can promote the competitive advantage of Russian LNG.

Gazprom won't stop the implementation of the Shtokman project as the construction of the first pipeline Nord Stream has already been started and the constriction of the second one is expected to be carried out in spring of 2011. Shtokman is an essential part of this gas supply direction in Russia. Nearly 1000 companies will be able to take part in the implementation of the project. The following hierarchy will be formed: nearly 40 contractors and sub-contractors which will draw plenty of enterprises of small and medium business. Under the terms of the operator, all sub-contractors have to involve into the project all-Russian and regional enterprises.

The construction of the road is just the beginning

Gazprom Dobycha Shelf has to work out more formidable tasks concerning the implementation of the second and the third phases of the Shtokman project. Gazprom Dobycha Shelf, a subsidiary of Gazprom, was established in October 2008 as a company which specializes on the exploration of offshore deposits. The first project of this company was gas condensate field of Shtokman. Gazprom Dobycha Shelf is the project owner which has to carry out the development of the field, the construction of the transformational and technological complex including the LNG factory of the second and the third phases and the social infrastructure. In the framework of the International Economic Forum In Murmansk, a cooperation agreement has been sighed between the government of the Murmansk region and Gazprom Dobycha Shelf till 2015. By means of the sponsor's support, Gazprom Dobycha Shelf will provide co-financing of the reconstruction and construction of new engineering services, power supply lines in Lodeinii and the construction of the road to Teriberka. At the beginning of 2009 the department of Gazprom Dobycha Shelf was established in Murmansk. There have been a lot of tasks allotted on this department. One of them is to provide control over the engineering survey on the route of subsea gas pipeline and the construction of LNG transshipment complex, which is carried out by the Petroburservis company together with its partner Sevmorgeologia in Zavalishino and Malaya Orlovka bays.

While Shtokman Development AG thinks over the possible date of signing an investment agreement and the beginning of the implementation of gas condensate field of Shtokman, gas supplies through the pipeline and from the LNG factory, sorting out financial questions and is searching for contractors, Gazprom Dobycha Shelf systematically conducts operations to implement the second and the third phases of the Shtokman project. In March 14 the public consultations were organized in Teriberka -the place of the future construction of LNG factory, the transformational and technical port complex and the starting point of the onshore pipeline. They are responsible for controlling the exploration operations at the location of the future construction of onshore facilities. And in December 10, 2009 the job of control over the road from Teriberka to Orlovka was added to the main tasks. While constructing the onshore facilities, it is planned to carry out shooting operations and to transfer more than 20 ml of cubic meters of subsoil, however, during the construction of this road the volume of rocky materials will be 2 ml cubic meters.

Zapolyargrazhdanstoi company has begun the construction of the road, which is the part of Stoigasconsalting company. To be able to do construction operations, the company had to take part in tender processes, prove its capabilities, its experience and the availability of qualified personnel to carry out the works. It was supposed to use several hundreds of large dump trucks, bulldozers and excavators during the construction. There are several 25-ton large dump trucks Mercedes, bulldozers and excavators Caterpillar, which are used during the start-up period of works. In the near future, this vehicle park will be filled up with new vehicles and it will be expanded in several times. It is planned to complete the construction in February 28, 2011 by building three bridges. Sub-contractors will be employed to carry out these operations; however, Zapolyargrazhdanstoi holds licenses to construct bridges also. Today more than 100 workers and specialists from Severvzryvprom are involved in this work. The company had to take part in several tenders, to win its eight competitors and to offer more acceptable prices for services and timing of working. No doubt, that it is just an early stage of large-scale works which will start after making a final investment decision by the members of consortium Shtokman Development AG.

THE INDUSTRIAL NORTH MAGAZINE #2 May 2010