Gazprom's deputy CEO Alexander Medvedev said the company may be considering liquefying all of its gas production from the first phase of the Shtokman project. He also said Russia’s major gas producer may scrap plans to pipe Arctic gas from the Barents Sea deposit, which might fuel concerns in Europe about the reliability of Russia as a major long-term gas supplier, amid increasing demand for gas in Asian markets.
A European Commission spokeswoman told New Europe on 11 April that the majority of Russian gas supplied to the EU over the next years is expected to come from the Yamal peninsula and other West-Siberian fields, not from Shtokman which is an offshore gas project in the Barents sea. “The Commission is therefore convinced that the Russian side – as in the past and mutual interest – will fully respect their commitments for gas supply to the EU, including through long-term contracts,” the spokeswoman said.
Gazprom is going to keep exports to Europe in 2012 at the same level as 2011 – 150bn cubic meters, and put up the price. Medvedev pointed out the 150bn cubic metres is a minimum level of supply in terms of Gazprom’s long term contracts. However, the rates of gas supply in April were in line with a 164bn cubic metres delivery plan, he said. "I am sure volumes will be at last year's level and probably even more," Medvedev added. “Even if we export 150bn cubic metres, the revenues will not decline; it will be quite the same as with 164bn.”
On 7 April, Gazprom’s deputy CEO said shareholders are considering scrapping a plan to pipe gas to Europe and instead would liquefy the entire production and ship it to global markets on tankers. Russian Prime Minister Vladimir Putin, who will serve a third term as president from May, said in March that Russia should wean itself off its dependency on European pipeline gas deliveries and expand into super-cooled LNG, which can be delivered to the markets of Europe, the Middle East and Asia by tanker without infrastructure constraints.
Gazprom Information Directorate told New Europe on 10 April that in the framework agreements, which was extended by the Shtokman Development AG Board of Directors to 1 July 2012, it is assumed that in the first phase of Shtokman field development the production will reach to 23.7bn cubic metres of gas per year, within production of 7.5m tons of LNG per year and supplies the rest of the volumes by the pipeline. Regarding to the priority markets of gas supplies from Shtokman field, Gazprom’s Information Directorate said that “in accordance with the Framework Agreements the marketing of all products of Phase 1 of the project will be conducted 100% by JSC Gazprom. This issue is in the study. We consider the market that allows us to maximise revenues for the project”.
Gazprom’s plan to focus on producing more easily transportable LNG at Shtokman can provide Gazprom with more diversified export destinations, Maria Yegikyan, oil and gas analyst at Moscow's Alfa Bank, told New Europe on 11 April. “We see this as a favourable scenario for Gazprom, and a likely one, especially after Vladimir Putin recent urge to for the gas industry to focus on LNG projects at the Kirishi meeting. LNG sales are more flexible versus pipeline, they could be sold to various destinations transported by tankers without costly pipeline infrastructure constraints,” Yegikyan said. “At the same time, it can provide Gazprom with more diversified export destinations, with Asia potentially becoming a key market. We see strong potential demand from China, as one of the most dynamically growing markets.”
At the same time, development of the challenging Shtokman field located in icy waters in the central part of the Russian sector of the Barents Sea shelf, about 600 kilometres northeast of Murmansk, where sea depth varies between 320 and 340 metres, is facing new challenges amid recent changes in the global gas market due to stronger supply from shale gas and weaker demand in Europe. At the end of March, its operating consortium Gazprom with a 51% stake, France’s Total and Norway’s Statoil delayed a final investment decision for the fourth time until 1 July, saying the project would need to be improved further, both technically and economically. “Gazprom may face some competitions, as following the oversupply of shale gas in the US companies are starting to consider LNG projects to export LNG from the US,” Yegikyan told New Europe.
Nevertheless, Gazprom’s share at the European market grew to 27% in 2011 from 23% in 2010. The gas producers expect to boost its share up to 30% by 2020. Gazprom, which is involved in both transmission of energy and its production, is still struggling to get its projects in line with the new EU energy policy aimed at separating energy production from distribution. “Recent negotiations made clear, that there is light at the end of the tunnel,” Medvedev said. “I hope it won’t die out and would be able to carry on our projects”.