Russia halts gas project in Arctic

Terry Macalister

A $15-billion energy project in the Russian Arctic has been sunk by soaring costs, falling European demand and cheap shale gas in the United States.

The ambitious Shtokman gas production scheme in the Barents Sea, described by the Russian president as recently as May as having

The ambitious Shtokman gas production scheme in the Barents Sea, described by the Russian president as recently as May as having "global significance", was officially halted this week.

"All parties have come to the conclusion that the financing is too high to be able to do it for the time being," said Vsevolod Cherepanov, head of Gazprom's production department.

The move became more likely last week when Gazprom's Norwegian partner, Statoil, handed back its 24% stake and wrote off $336-million, saying Shtokman could not be commercially justified.

Gazprom said it was still talking to Shell and other foreign investors about taking over the Statoil stake.

Oil and gas exploration in the far north is controversial given its unspoilt environment and Greenpeace took its first direct action against Gazprom last week by boarding a floating platform in the Arctic.

Land of milk and honey
Ben Ayliffe, a polar campaigner at the green group, said the scrapping of Shtokman sent a warning to investors that the Arctic was not "the land of milk and honey" the oil and gas industry claimed.

"The likes of Cairn, Shell and Gazprom have spent billions in the Arctic, but come out with nothing to show for it. The technical challenges of operating in such conditions mean hydrocarbon development in the far north is a huge risk," Ayliffe said.

But Paul Stevens, an energy expert at international affairs think-tank Chatham House, said the Shtokman move was not cause for celebration. "I worry that expectations of a shale revolution in Europe is undermining investment decisions. It is okay if Europe is soon awash with cheap shale supplies, but if it turns out to be hype then it could be too late to invest in alternative projects. That would have implications for [gas] prices," he said.

The decision to shelve the Shtokman project represents a significant blow to the Kremlin's economic – and possibly political – strategy. Critics have often accused Russia of using energy as a foreign policy tool and it no doubt believed that becoming a significant provider of gas to the US would give it political leverage.

Shtokman is one of the world's largest gas fields, but it has been the subject of endless political and commercial wrangling since it was discovered almost a quarter of a century ago. With reserves estimated at 3.8-trillion cubic metres, it was considered a major opportunity as gas prices began to soar in the early part of the new century. Gazprom insisted this week that it was still possible that Shtokman could see the light of day, pointing out that Total of France remained a stakeholder.  – ©Guardian News & Media 2012

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