RUSSIA REVERSES PLANS ON SUPERGIANT SHTOKMAN GAS FIELD

On October 9 Russia’s Gazprom announced that it has canceled the international tender for part-ownership and development of its supergiant Shtokman offshore gas field in the Barents Sea. Instead, Gazprom will itself develop the field as 100% owner. Moreover, the eventual output’s planned destination has been changed: Rather than being liquefied and shipped by tankers to the United States and other world markets, most of Shtokman gas is instead to be exported by pipelines to Europe.

The Kremlin timed Gazprom’s announcement to President Vladimir Putin’s now-completed visit to Germany. While there, Putin announced that part of the Shtokman output would be pumped to Germany through the planned pipeline on the Baltic seabed (the North European Gas Pipeline-NEGP, just renamed “North Stream”).

Moscow had been negotiating with Western companies to form a consortium for field development and gas liquefaction at Shtokman. Almost two years ago, Moscow short-listed the American companies Chevron and ConocoPhillips, Norway’s Statoil and Norsk Hydro companies, and Total of France as candidates for an aggregate 49% in the planned consortium. Gazprom was to have retained 51%. However, now the Kremlin wants full control.

Moscow officially estimates Shtokman reserves at 3.7 to 4 trillion cubic meters — an estimate perhaps overstated to counter the widespread perception that Gazprom’s proven reserves stagnate or decline. The first gas and the liquefaction plant at Shtokman were planned to come on stream in 2011-2012.

Moscow’s reversal on Shtokman seems to have surprised many government and corporate officials on both sides of the Atlantic. The Western companies candidate to the consortium learned about the reversal from the mass media, according to companies’ spokesmen. However, Putin had clearly hinted at this reversal earlier this year when meeting German Chancellor Angela Merkel in Compiegne. Referring to the Shtokman field, he asked, “Do you know what it would mean to the German economy if deliveries from that field were guaranteed for 50 to 75 years?” (Der Spiegel, October 6-12). Moscow, for one, knows that it would mean one-sided German dependence, as the deliveries would be conditioned on monopoly-type arrangements as well as Gazprom sharing in German and European infrastructure and end-user markets.

According to Putin, Western companies who wished to participate in the Shtokman consortium “had to offer to Gazprom some of their own assets. Not money, but assets. We don’t need money for such investment projects, money can easily be obtained on international financial markets. We need assets.” However, Putin concluded, none of those candidate companies could offer assets commensurate to the value of the Shtokman gas deposits (Putin’s Sueddeutsche Zeitung interview cited by Kremlin.ru, Interfax, October 10, 11).

Three implications stand out in Putin’s statement. First, it insists on a form of barter whereby Western companies — and, by implications, societies — would transfer parts of the national infrastructure to Russia for the privilege of what Moscow terms “access” to its hydrocarbon deposits. Second, this strategy relies on manipulation of Western financial markets by Russian anti-market actors, as seen in Gazprom’s and Rosneft’s recent multi-billion dollar IPOs. And, third, the insistence on transfers of capital and infrastructure clearly forms a part of Russia’s political strategy to weaken and neutralize Europe.

This Gazprom-favored model is one that influential sections of the German business and government hastened to embrace last year through the NEGP/North Stream and “access” to Siberian gas in return for German assets. That precedent-setting move has emboldened Moscow to make similar demands on other would-be partners. In the negotiations over a consortium for Shtokman, Moscow demanded part-ownership of liquefied natural gas (LNG) terminals in North America, or access to North American gas distribution markets, or shares in U.S. and international companies’ production projects including LNG plants, or any combination thereof. With the European candidate companies, Gazprom discussed shared ownership in the French Total’s LNG plant in Louisiana or in the two Norwegian companies’ offshore fields in the North Sea, among other assets. Apparently, Gazprom and the Kremlin did not receive the assets they coveted, particularly in North America. Consequently, they seem to be “rewarding” the compliant Germans with access to Shtokman gas.

As Putin told the German public during his visit, Russia currently delivers some 40 billion cubic meters of gas to Germany annually; it will add 27.5 billion cubic meters through the NEGP/North Stream annually starting in 2011, and another 27.5 annually through the same pipeline’s second trunk line from 2015 on, for a staggering total of 95 billion cubic meters. According to Putin, this would turn Germany into the largest gas distribution center and main transit country for Russian gas in Europe (Interfax, October 10, 11).

The NEGP/North Stream is co-owned by Gazprom with a 51% stake and Germany’s BASF Wintershall and E.ON Ruhrgas with 24.5% each. Ownership arrangements for the upstream source, the Yuzhno-Russkoye gas field in western Siberia, are close to finalization under the same formula. Meanwhile, with growing Russian internal demand, limited and difficult field development in Russia, and more expensive Turkmen gas, Moscow apparently believes that Gazprom’s capacity to fulfill supply contracts in Europe a few years from now is in question. Thus, it seems necessary to use a large part of the anticipated Shtokman output to supply Europe by pipeline and, in the process, capture a growing share of European markets and infrastructure.

Gazprom’s reserves have grown since 2004 thanks only to its acquisition of the Shtokman and Prirazlomnoye fields from Rosneft. Thus, the growth in Gazprom’s estimated gas reserves exceeded Gazprom’ gas extraction in 2005 for the first time in many years (Interfax, October 10).

According to chairman Alexei Miller, Gazprom intends to build an LNG plant at Shtokman and subcontract that work to Western companies. However, most of the exports from that field would go by pipeline to Europe. Miller portrays this decision as demonstrating that European markets take priority in Gazprom’s plans (Interfax, October 10). This sounds like a jab at the United States, which was the main designated user of Shtokman gas under the plan that Moscow has now reversed. But while in Germany, Putin issued his usual oblique warnings that Russia might turn to Asian or other markets if Europe would “place limits” on Russian supplies.

At the outset of Putin’s visit, Merkel telephoned Ukrainian President Viktor Yushchenko to propose reactivating the long-dormant talks on the formation of a Russian-German-Ukrainian consortium to take over Ukraine’s transit pipeline system (Interfax-Ukraine, October 10). Ukraine has long stonewalled or downright opposed this idea, of which Merkel apparently has now become an echoing messenger.