Gazprom Chooses StatoilHydro to Participate in $30 Billion Gas Project in the Barents Sea

Russia's gas monopoly Gazprom on Thursday chose Norway's StatoilHydro ASA to participate in a US$30 billion (euro21 billion) gas project in the Barents Sea that is crucial for Russia if it is to meet rising demand for natural gas at home and abroad.

StatoilHydro will take a 24 percent stake in an operating company that will plan, finance and build the first stage of the technically daunting Shtokman gas field, which could eventually produce up to 100 billion cubic meters of gas per year. France's Total SA has a 25 percent stake, while state-controlled OAO Gazprom will keep 51 percent.

Gazprom will also retain ownership of Shtokman's reserves, estimated at 3.7 trillion cubic meters of gas, the equivalent of six years of Russia's current annual production and enough to meet U.S. demand for six years.

"We have gigantic reserves in the Barents Sea, and our Norwegian partners have good experience in carrying out gas production and transportation in the harsh climate conditions in the north," Gazprom CEO Alexei Miller said in a statement.

Early on Thursday, President Vladimir Putin personally called Norwegian Prime Minister Jens Stoltenberg to inform him that StatoilHydro was chosen for the project -- indicating the high degree of Kremlin involvement in the project.

StatoilHydro -- formed earlier this month when Norsk Hydro sold its oil and gas division to its larger Norwegian rival Statoil -- beat out U.S.-based ConocoPhillips for the stake despite plans for Shtokman gas to be delivered to the North American market in liquefied form.

Michael Emerson, senior researcher at the Center for European Policy Studies in Brussels, said he did not rule out that unresolved geopolitical issues between Russia and the United States -- such as Washington's plans to build a missile shield in Eastern Europe -- influenced the decision.

But the deal was signed Thursday to coincide with Putin's visit to Portugal this week, where he will attempt to forge a new trade deal with the European Union, analysts said.

"By bringing StatoilHydro on board today, Putin is showing he is ready to give the green light to the project, which Europe needs just as much as Russia since it will run into supply problems around 2012," said Chris Weafer, chief strategist at UralSib, a Russian investment bank.

StatoilHydro is 62.5 percent owned by the Norwegian state, which is not a member of the European Union.

EU officials have expressed increasing alarm in recent months about Russia's stagnant gas production capacity at a time when energy consumption is on the rise. Russia, for its part, is annoyed that the EU's new draft energy charter targets Gazpom's investments into EU energy production and infrastructure, which Brussels wants to separate.

"Putin will be looking for a softening of the EU's stance in regard to this charter," said Weafer, adding that Moscow would also like to see progress on a new strategic trade agreement with the EU that would free up trade and investment.

Russia currently provides 30 percent of the EU's oil imports and 42 percent of its natural gas imports.

Gazprom said in a statement that the first shipments of Shtokman gas would be made in 2013, when production would reach 23.7 billion cubic meters.

The field is projected to have an active life of more than 50 years, with gas output peaking at some 97 billion cubic meters for 25 years, according to ZAO Sevmorneftegaz, the Gazprom-controlled company that owns the license to the field.

According to plans, gas extracted from beneath the seabed will be piped 600 kilometers to the shore, and then south to connect to the Nord Stream pipeline, which, when completed, will deliver gas directly from Russia to Germany beneath the Baltic Sea.

Emerson said that Russia's opting to cooperate with the Norwegians is "reasonable."

"They're right next door, they have the technology for this type of thing, and they share an undemarcated zone with Russia in the area," he said.

Norwegian Oil Minister Aaslaug Haga stressed that StatoilHydro has "unique competence" in working on the northern continental shelf and extensive experience in Russia.

Statoil developed Snoehvit, the first offshore field in the Barents Sea. The company had to develop much of the technology needed to produce the gas in harsh Arctic conditions, and in an environment similar to Shtokman. The project has no facilities above the ocean surface and is remotely controlled from land, by a 155-kilometer cable.

In taking over Norsk Hydro's oil and gas unit, the new StatoilHydro also acquired the technology and expertise that went into building the giant Ormen Lange natural gas field in the Norwegian Sea, in which all of the installations are underwater and had to be placed on the extremely steep and uneven area of the sea floor and be able to withstand exceptional currents, extreme wind and wave conditions and subzero temperatures on the sea floor.

Associated Press