Russ Oil-Gas

07–19–2007 –  Moscow News by Marina Pystinik – By the time this paper hits the stands, Gazprom's announcement that it will partner with France's Total to develop the giant Shtokman gas field in the Barents Sea will be old news already, but I just cannot forego the opportunity to consider this situation. The giant Shtokman field has already been hailed as the new warehouse of gas for Europe. The question of its development had been mulled over for at least two years when the gas monopoly announced a short list of contenders, one or two of which would get the chance to work hand-in-hand with Gazprom. Besides Total, the list features Norway's Hydro and Statoil and U.S. giants ConocoPhillips and Chevron. Last October Gazprom finally scrapped the original plan to offer foreign partners shares in license ownership and output, announcing that it would have a go at Shtokman alone. Later the giant reconsidered and renewed negotiations. The new conditions, however, called for granting foreign companies a stake in the service and infrastructure company that will develop the field, while Gazprom would retain full ownership of the field's reserves. Later Gazprom softened its position further, saying that the partners may be allowed to book a share of reserves as their own. Throughout the process of negotiations Total remained an outsider. It was believed that Gazprom would pick either a Norwegian or a U.S. company - or both. Total has nothing to bring to the deal except cash. Moreover, its recent experience in Iran, where it is building an LNG plant that is running into huge cost overruns, shows that it is not the best choice for a liquefied gas project situated just a few miles from the icy shore. But last Thursday Gazprom made a surprise announcement that Total would get a 25-percent stake in an operating company that will finance, build and own infrastructure in the $20 billion project. The gas monopoly also said that when the first phase of the field's production is complete, Total will return the stake in Sevmorneftegaz, the development company, to Gazprom. It doesn't take a genius to understand that Gazprom's decision is political. Now that relations with the U.S. Administration have soured, the selection of an American company was highly unlikely. Russia-Norway ties are strained over the territorial dispute and fishing rights in the Barents Sea. Russia's relations with Europe are becoming more and more troublesome. Unlike her predecessor Gerhard Schroeder, German Chancellor Angela Merkel is no friend of President Putin. The Russian-British relations are far from ideal and the Kaczynski twins in Poland use every opportunity to berate Russia. The new President of France Nicolas Sarkozy promised his European colleagues that he would be tougher on Russia than his predecessor. It is said that the fate of Shtokman was sealed by a single phone call by Putin to Sarkozy. The Russian president thus killed two birds with one stone - the cash-rich Total will help bankroll the expensive project development, while the French president will have to think twice before using anti-Russian rhetoric. Having a French partner for Shtokman suggests that its executives will gladly lobby for Gazprom's interests in Europe. But what seems like the best decision today may not prove the best several years down the road. Gazprom needs Arctic expertise and some serious cost-cutting techniques to keep the project's budget from going overboard. What it has today is a political partner with lots of cash and no experience in strenuous northern conditions. Let's hope that Norwegian companies will be invited on board this rocky coalition - that would give the Shtokman project a chance of ever coming on stream. Otherwise it may be a long time before Europe actually sees any of the promised gas.