An official at Russia's top gas producer Gazprom said on Wednesday that the company agreed with partners at Shtokman giant gas enterprise that the project is not feasible for now as the costs are too excessive.
Vsevolod Cherepanov, head of Gazprom's production department, said that Gazprom agreed with France's Total and Norway's Statoil that costs are too high for the project to be implemented at the moment.
"All parties have come to the conclusion that the financing is to high to be able to do it for the time being," he said.
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Here is some background information, provided by analyst Vladimir Socor:
Initially, the Kremlin and Gazprom had intended to go it alone at Shtokman. President Putin announced (or confirmed) that decision in 2005. One year later, Putin offered to export the lion’s share of Shtokman’s first-phase gas to Germany. At that point, Shtokman was the designated source for the second line of Gazprom’s Nord Stream pipeline to Germany. (That second line’s construction is planned to start during the current year, without a clearly identified supply source for its 27.5 billion-cubic-meter design capacity, even as Nord Stream’s first line of the same capacity is being underutilized).
The Kremlin soon concluded that development of Shtokman was beyond Gazprom’s means. Gazprom signed a framework agreement with Total and Statoil in 2007 and formed the Shtokman Development AG project company with them in 2008. Departing from the model of production sharing agreements, the Kremlin introduced a special investment vehicle arrangement, reducing its two partners to a status of service contractors in this project. A fully owned subsidiary of Gazprom holds the license to Shtokman resources. Gazprom, Total and Statoil hold stakes of 51 percent, 25 percent and 24 percent, respectively, in the Shtokman Development company. The project company’s main task is to build the offshore infrastructure for the first phase of production. Expected to start by 2013, commercial production was to reach 24 bcm per year in the first phase, a staggering 71 bcm annually in the second phase, and potentially 95 bcm per year in a third phase.
Under those plans, 50 percent of the production volume was to be exported by pipelines (including Nord Stream) to Europe, and another 50 percent in the form liquefied natural gas (LNG) mainly to the United States. Left behind by the LNG revolution, Russia hoped to catch up by acquiring Western technology from its partners in Shtokman. However, the shale gas revolution left Russia behind again. By 2010, with shale gas over-saturating the US market, Shtokman lost that raison d’etre.