The power of energy
Expert comment: According to the Russian gas company Gazprom the development of the gigantic Russian gas field Shtokman will probably be delayed, with reference to gas market conditions. The field is regarded as the central element of Russian-Norwegian petroleum cooperation in the High North. But how will the world economical crisis affect Shtokman?
by Arild Moe, Deputy Director at the Fridtjof Nansen Institute and participant in the GeoPolitics in the High North programme.
According to plan, the final decision on the gigantic Shtokman development will be taken in early 2010. Until then, continued surveys, development of technical solutions, tender invitations and finalisation of the contract negotiations within the operating company Shtokman Development AG will be on the agenda. Shtokman Development AG is owned by the Russian state dominated energy giant Gazprom (51 per cent), French Total (25 per cent) and Norwegian StatoilHydro (24 per cent). These companies will altogether have spent close to a billion dollars on the preparations before finally deciding whether to go ahead.
A changed world
The companies would of course not have started their work – and spent so much money – if they did not believe in the project. But as we know, the world has changed significantly since the beginning of last year. How does the world economy affect Shtokman? The price of oil is important because the price of gas is linked to it. Currently the oil price is less than half of last year’s peak. Nevertheless, today’s oil price of about USD 60 is not significantly lower than it was when StatoilHydro decided to join the project in autumn 2007.
And it is not today’s price that is decisive, but what price that can be expected the day the field is in production. There is considerable uncertainty, but most analysts believe the price will increase over the coming years.
Demand for gas from different suppliers is not solely determined by price. The reputation of Russian gas – being the cornerstone of European gas supplies – has suffered in recent years due to the gas conflicts between
This may have consequences for the Shtokman gas. From a Russian point of view it will contribute to European energy security as the gas will be delivered either through a pipeline under the
Consumption is plummeting
In the short term the most striking development is in the domestic Russian gas market. The crisis in the economy has made Russian gas consumption plummet. In order to meet reduced demand, Gazprom has signalled production cuts of close to 100 billion cubic metres this year, a volume equal to the total production on the Norwegian shelf. Shtokman’s first phase, where the foreign companies are participating, will according to plan be producing 23 billion cubic metres per year.
The insecurity in the export markets and the dramatic fall in domestic demand could make it reasonable to assume that the development of new fields will not be prioritised. The Shtokman, however, should be viewed in a more long term perspective. Even though
But Shtokman is not the only field that can be used to maintain Russian gas production in the future. The development of the fields on the Yamal peninsula is more important. And despite the efforts of importing countries to find alternative gas providers,
The development in the world economy and the energy market has not made Shtokman irrelevant, but less urgent than it was a year ago. How much less urgent is impossible to say without access to Gazprom’s internal calculations. But reduced urgency allows the project more time, something signals from Gazprom indicate.
The final decision on investment will depend on a number of technical and commercial considerations made by the participating companies. But the project must also be perceived as attractive for
This is an English version prepared by IFS of an article that was first printed in Nordlys 24 July 2009.