Strategy
The Shtokman gas and condensate field development project is of strategic significance for Gazprom. The field will become a resource base for Russian pipeline gas and liquefied natural gas (LNG) exports to the Atlantic Basin markets.
Field description
The Shtokman gas and condensate field was discovered in 1988. The field is located in the central part of the Russian sector of the Barents Sea shelf, about 600 kilometers northeast of the city of Murmansk, where local sea depths vary from 320 to 340 meters.
The field’s C1 reserves make up 3.9 trillion cubic meters of gas and 56 million tons of gas condensate, with 3.8 trillion cubic meters of gas and 53.3 million tons of gas condensate located within Gazprom’s licensed area.
Major project specifications
The Shtokman development project envisages annually producing some 70 billion cubic meters of natural gas, which is comparable to the annual gas output of Norway, one of the largest European gas suppliers.
Production from the field will be performed using deepwater production systems and specialized support vessels. The produced feedstock will be conveyed via offshore pipelines to the coast of the Teriberka Bay, where an LNG plant, a port transportation and technological complex, a comprehensive gas treatment unit and other production facilities will be located. It is projected to construct the Murmansk – Volkhov gas pipeline to deliver natural gas to the Unified Gas Supply System of Russia.
In September 2006 Gazprom successfully finished drilling of exploration well No.7 in Shtokman field
Phase 1 of the field development contemplates annually producing 23.7 billion cubic meters of natural gas.
It is planned to take the final investment decision on pipeline gas production in March 2011 and the decision on LNG production – Phase 2 – before the end of 2011. Such an approach will enable to launch pipeline gas and LNG production in 2016 and 2017 accordingly.
License holder
Gazprom neft shelf (former Sevmorneftegaz), a wholly-owned subsidiary of Gazprom, holds the gas and gas condensate exploration and production license for the Shtokman field.
Cooperation within project
On July 13, 2007 Gazprom and Total signed the Framework Agreement on the major terms and conditions of cooperation when developing Phase 1 of the Shtokman gas and condensate field. The identical Agreement between Gazprom and StatoilHydro (present Statoil) was signed on October 25, 2007.
Considerable assistance to the project will be given by the Murmansk Oblast Administration and the Russian Federation Navy pursuant to the Cooperation Agreements with Gazprom signed in November 2005.
Gazprom, Total and StatoilHydro are the partners for the Shtokman field development, phase one
October 2006 saw the successful completion of the year-long public discussions of the project in the Murmansk and Leningrad Oblasts, and the Republic of Karelia.
Special-purpose company
On February 21, 2008 Gazprom, Total and StatoilHydro (present Statoil) signed the Shareholder Agreement to set up the special-purpose company Shtokman Development AG. Gazprom holds a 51 per cent stake in the company, while Total and Statoil – a 25 and a 24 per cent stakes accordingly.
Shtokman Development AG will own the Phase 1 infrastructure of the Shtokman gas and condensate field for 25 years starting from the field commissioning date.
The relations between the special-purpose company and Gazprom neft shelf will be based on the contract stipulating that Shtokman Development AG will bear all the financial, geological and technical risks associated with the extraction of gas and condensate, as well as LNG production.
Gazprom remains a 100 per cent owner of Gazprom neft shelf and retains all the rights to market the products.
Project implementation
By the moment, Shtokman Development AG has developed an integrated basic project involving the entire process chain from well drilling to final products (pipeline and liquefied natural gas, condensate) delivery to the license owner for trading at sales markets. A thorough engineering survey has been performed, front-end engineering and design (FEED) documents have been developed according to international and Russian standards and a package of project specifications has been prepared. The project risks have been assessed and the ways of mitigating them have been elaborate. The state expert review for offshore facilities has been finalized. The work is underway to optimize technical solutions and to raise economic viability of the project.
In 2008 the Vyborg Shipbuilding Plant launched the construction of two semi-submersible drilling rigs (SSDR) to drill production wells in the Shtokman field. The first SSDR will be ready by the fourth quarter of 2010, the second one – in the first quarter of 2011.
Within Phases 2 and 3 of the Shtokman project Gazprom dobycha shelf (operator of the Phases) is getting ready for the comprehensive offshore engineering survey to be performed in the Teriberka Bay during the 2010–2011 summer periods in order to develop the process facilities design.
Environment
On October 23, 2006 the Federal Nature Management Supervision Service (Rosprirodnadzor) granted the approval of the state environmental expertise on the investment rationale for Phase 1 of the Shtokman field development embracing liquefied natural gas production and sea-borne transportation.
Project viability assessment
The following prerequisites will ensure the successful execution of the Shtokman field development project:
- abundant gas reserves provide sustainable long-term supply;
- an opportunity to diversify supplies through parallel pipeline and liquefied natural gas shipments to Europe and the USA via various routes according to the market situation;
- an opportunity to considerably expand gas production depending on the market situation;
- favorable feedstock composition allows minimizing gas separation and treatment costs;
- low regional temperatures save energy costs of the gas liquefaction process;
- no transit countries along the natural gas delivery route from the Shtokman field to Germany boosts the project competitiveness;
- availability of a developed infrastructure on the Kola Peninsula creates a favorable environment for the project execution;
- relatively small distances from the feedstock base to sales markets (the US Eastern Coast, Canada, Mexico) will make Russian LNG competitive;
- absence of ice and permafrost is an advantage of the Shtokman field development as compared to other Arctic fields.