The question about the size of incentives and concessions the foreign partners in the Shotkman project can expect has been lingering for two years.
The meeting will be taking place against the backdrop of an enormous gas leak taking place at Total’s Elgin/Franklin platform off the coast of Scotland, shedding an ill light on the environmental prospects of drilling for gas condensate.
Alexei Miller, Chief Executive Officer of Gazprom – Russia’s natural gas giant – said Monday at a press conference that a board meeting of Shtokman Development AG would take place March 29, according to Russia’s Interfax news agency.
Miller said Monday, according to Russian press reports, that he had met with Total CEO Christophe de Margerie and his counterpart Helge Lund of Statoil and discussed with them “the first phase of developing the Shtokman field.”
Late last week, however, Russian Deputy Finance Minister Sergei Shatalov, said the Ministry of Economics says this might be jumping the gun.
Shatalov told Interfax that the Ministry of Economics was thus far unable to determine the tax breaks the Russian government should offer the Shtokman Develompent AG consortium, which was set to develop the Arctic gas field in the Barents sea.
Analysts widely expect that no decision will be made on this before June.
Analysts have also said that time is running short on divvying up the incentives. An analysis on Russia’s b-port.com, an industry web site, noted that it would be unwise for Gazprom to put off making decision until later than June of this year because of certain forecasts for the liquefied natural gas market’s (LGN) behavior over the next 10 years.
The Gazprom explained its approach on b-port.com by citing the number of competing projects it is currently planning for launch and the sizable limitations this places on its opportunities to go into long-term contracts under terms that would ensure acceptable economic performance for the Shtokman project.
Another Russian LNG project, Yamal LNG, received tax incentives long before the adoption of its investment plan, and Shatalov said earlier that the tax regime for Shtokman could be developed along similar lines to Yamal’s.
However, that this will happen by Friday, said Shatalov, is unlikely because the data supplied to the Ministry of Economics on the Shtokman project are insufficient.
“Gazprom gave [the ministry] us data that, in my view, that do not yet allow us to reach any strategic decisions,” Shatalov told nord-news.ru. “The economics they produced – the dynamics of [gas] recovery, resources – all of this is still a big question mark.”
Norway’s Statoil, France’s Total and Gazprom make up Shtokman Development AG. Statoil holds 24 percent of the project, Total, 25 percent and Gazprom retains the majority share at 51 percent.
According to Nina Lesikhina, energy projects coordinator for Bellona Murmansk, the investment decisions will again be put off this Friday and shift the project deadlines. In her opinion, the high cost of recovering the gas results from having to adapt unique technologies, a total lack of infrastructure and insurmountable ecological risks.
“Half of Russia’s budget is based on profits from selling petroleum, therefore the government is not prepared to make concessions to oil and gas giants, especially western ones,” Lesikhina said. “And the size of these concessions within the economics of the project are considerable. Where Shtokman is primarily of political interest for Gazprom, for Total and Statoil it means profit.”
What incentives are they waiting for?
The incentives Shtokman AG is expecting include a state reduction on both the tax rate on oil and gas production and the export tax on gas. Without these measures, it contends, the project will operate at a loss.
The Russian government had been expected last year to ratify an investment plan intended to spur the development of hydrocarbon resources on the Russian continental shelf, including, specifically, tax and customs preferences for companies working it.
But, said Shatalov, it still has not, and as a consequence, no investment decisions will be made prior to the upcoming meeting.
“We understand the incentives are needed, that without the incentives nothing will happen, but the incentives package and the parameters of the incentives is difficult to predict, “ he said.
Another outcome, which would have disastrous environmental outcomes would be if the companies making up Shtokman AG decide to forgo their incentives altogether.
This would conceivably mean only one thing: The companies would begin cutting corners, and if experience is any guide, they would cut corners that deal with the environmental safety of the project.
What is best for the environment?
Last year Bellona and a number of other Russian environmental organizations sent Gazprom, Statoil and Total an appeal to put off finalizing an investment plan until all the blank spots in environmental risk studies of the project had been filled, and a plan put in place for dealing with emergencies in the delicate Arctic environment.
Environmental groups have reproached Shtokman Development AG for not supplying an adequate emergency plan, which would include an evaluation of the efforts and financial costs necessary for spill and accident response.
The company still has not produced a comprehensive environmental assessment of the project. Results of acoustic sounding tests on and the effects of gas hydrates on local marine life remain unknown. Risks associated with climate change have also remained in the dark, and it still remains unclear if any climate mitigating technologies will be put to use
While Elgin spills…
How the meeting will play out against the background of Total’s ongoing gas spill in the North Sea, which began Sunday, is unclear. But the calamity is an tundering reminder that gas spills can pose almost insurmountable dangers to the environment.
Gas continues to leak in volumes between two and 23 tonnes of gas condensate and a sheen along the surface of the sea has encircled the platform and trails off for 11 kilometers, according to eye-witness reports.
This morning, Bellona President Frederic Hauge suggested the unthinkable: that if the leak – which seems to be emanating from the reservoir itself 93 meters below on the sea bed and stretching 5000 meters into the earth – continues, the only was to solve it may be to burn off the gas that has leaked.
Early this morning, Total told Bellona that it was unable to predict when or how the gas leak would be contained.
Anna Kireeva contributed to this report from Murmansk.