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Source: Reuters

UPDATE 3-Gazprom delays giant Shtokman gas field by 3 years

Published: 05 Feb 2010 10:43:00 PST

* Pipeline gas expected in 2016, LNG in 2017

* Gazprom says changes driven by LNG market changes

* Analysts say not sure 2016 is realistic

* Total, Statoil underperform BP, Shell

MOSCOW, Feb 5 - Russia has delayed the start of its giant Arctic Shtokman gas field by three years to 2016 after a dip in European demand and a surge in North American shale gas output dampened its export prospects.

Russian gas export monopoly Gazprom said in a statement on Friday it had agreed with partners Total and Statoil to delay pipeline gas production from Shtokman from 2013 to 2016.

Liquefied natural gas (LNG) output will begin in 2017 instead of the earlier planned 2014. The decision was made due to "changes in the market situation and particularly in the LNG market".

Shtokman, one of the world's largest gas fields, in the stormy Barents Sea, is expected to require $15 billion of investment in its first phase.

Gazprom saw a slump in exports last year amid a global economic slowdown and due to a surge in unconventional gas supplies, such as gas extracted from shale, in the United States.

Increased LNG supply and less voracious demand for imported gas in the United States than previously expected caused many LNG tankers to head to Europe in 2009.

The extra supply drove spot European gas market prices below oil-indexed Russian prices, leading Gazprom's customers to consume as little Russian gas as their long-term contracts allow so they could lap up the cheaper LNG.

Gazprom, which supplies Europe with a quarter of its gas needs, has said consumption would return to normal over time and that Shtokman gas would then be needed.

"The Shtokman delay must have been dictated by Total and Statoil because they are driven mainly by profits, while Gazprom is often being driven by politics," said Mikhail Korchemkin from East European Gas Analysis think-tank.

"Gazprom simply could not resist because it cannot carry this project alone," he added.

Frank Harris, an LNG analyst at consultants Wood Mackenzie, and Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, both said they had not expected any LNG to come from the long-delayed project until 2018, even before Gazprom admitted the schedule had slipped to 2017.

Stern said the delay to the pipeline part of the project could mean the second Nord Stream pipeline from Russia to Europe, which is scheduled to be completed in 2012, will be delayed or have to get gas elsewhere.

"If they are not going to do the (Shtokman) pipeline until 2016 it means that Nord Sream 2 logically wouldn't be going until 2016," he said.

"If they want to do Nord Stream 2 before hand that means they have got to create an alternative source of supply from Siberia, but of course once they have done that then the value of Shtokman is much less."

The first of two parallel Nord Stream pipelines planned under the Baltic to Germany is due to open in 2011.

NEW DEADLINE CHALLENGING

A senior BP official told Reuters this week the growth of a global LNG market and unconventional gas reserves will force major energy exporters, such as Russia, to rethink their gas strategies.

Gazprom had initially planned to liquefy and ship most of the Shtokman gas to the United States but these plans changed after political relations between Moscow and Washington chilled and Gazprom chose European instead of U.S. firms as partners.

The latest plan foresees an equal split between pipeline gas and LNG. On Friday, Gazprom said the final investment decision on pipeline gas was planned before March 2011, and on LNG before the end of 2011, a year later than in the latest plan.

Korchemkin said there was no guarantee the project would be launched at that time.

"It will depend on whether Europe finds shale gas and on the progress of rival LNG projects in Qatar and Australia. The United States won't need this LNG neither by 2017, nor by 2025, so the competition will focus on Europe and Asia," he said.

Statoil and Total both said they were still committed to the project despite the delay.

Gazprom closed 2.3 percent down on Friday in line with the broader market. Total and Statoil were down 2.4 percent and 1.7 percent, together with a weaker oil price, but underperforming peers BP and Royal Dutch Shell.

The Shtokman field was discovered by the Soviet Union in 1988 and its start-up has been repeatedly delayed due to problems with financing. If the field is put on stream in 2016, it will come 16 years later than initially planned.

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