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Analysis – Russia’s Gazprom hits out at shale gas

11 Feb 2010 18:24 GMT
Analysis – Russia's Gazprom hits out at shale gas

London, 11 February (Argus) — The final shape of the 3.8 trillion m³ Shtokman gas project in the Barents Sea will depend on the outlook for US shale gas development, Russia's state-controlled Gazprom said. The Russian firm and its partners, Total and Norway's Statoil, said last week that the decision on how to proceed is being delayed by uncertainty over LNG demand following the so-called “shale gas revolution”.

Gazprom is awaiting the results of a US Environmental Protection Agency (EPA) study into shale gas before it decides whether to press ahead with plans for Shtokman LNG development, deputy chairman Alexander Medvedev said in London this week. The US was earlier seen as the target market for LNG from Shtokman, which is also due to supply pipeline gas.

The US Congress has asked the EPA to investigate whether hydraulic fracturing techniques used in shale gas production contaminate water supplies, in response to concerns from environmentalists. Medvedev said shale gas technology “endangers drinking water”.

Total declines to comment on the study, but said while there is short-term “overproduction in the gas market, in the medium term gas demand will keep on increasing and in the longer term, in all markets across the world, all sorts of gas will be needed”. A spokesman added: “Bidding for [piped] gas is well advanced, so we will have all the information we need for the gas side earlier than for LNG. The overall project is complex and challenging, but we are still in mind to see it developed fully.”

The Shtokman Development Company (SDC) said last week that “changes in the market situation and particularly in the LNG market” had prompted a review of earlier pipeline and LNG export plans. SDC will now treat developing offshore production, building a gas pipeline to the shore and an onshore gas treatment unit as one separate stage within Shtokman's first phase.

The partners now plan to make the final investment decision (FID) on pipeline gas in March next year. The FID on LNG will be made before the end of 2011 “if the environment is favourable”, Medvedev said. Shareholders said these dates would allow pipeline gas to come on stream in 2016 and LNG in 2017. Pipeline gas could have flowed in 2013 and LNG in 2014 if the FID had been taken next month, as expected earlier.

The first phase's estimated $15bn budget could rise by 25-30pc, Medvedev said. A realistic forecast will only be possible once an initial engineering study has been carried out and tenders issued. First phase production is scheduled at 23bn m³/yr. Two further stages will take this to 70bn-90bn m³/yr.

Shtokman output was supposed to be split between the planned 27.5bn m³/yr Nord Stream pipeline from Russia to Germany, due on stream late next year, and a 7.5mn t/yr LNG plant in the Murmansk region. Medvedev insists the decision to delay the pipeline gas FID to March next year will not affect Nord Stream, as there will be enough gas in the Gazprom system to fill it until Shtokman start-up. Gazprom has already contracted buyers for Nord Stream's entire capacity, he added.

Once final permission for Nord Stream's sub-sea section is received from Finnish authorities — expected in two weeks, Medvedev said — work should start on 1 April. The first stage of the line is due on stream in the fourth quarter of next year.

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