Thursday, July 12, 2012

The Shtokman Gas Field Exploration Project



On June 22, 2012, Reuters has reported ongoing negotiations among Gasprom, Total, Statoil and, presumably, Shell, about a new framework agreement for the Shtokman gas project, whose current shareholder pact was about to expire on July 1, 2012.


The project is currently in trouble because the shale gas revolution in the United States will probably make exports of liquefied natural gas to the US unattractive and because the gas consumption in Europe is currently declining, due to the economic downturn.




As I am writing this article, the outcome of these negotiations is still unclear.


Project Timeline

  • 1988: Discovery of the Shtokman gas field
  • July 2007: Signing of a framework agreement between Gasprom and Total
  • October 2007: Signing of a participation agreement by Statoil
  • 21 February 2008: Establishment of the project company “Shtokman Development AG”
  • 2016: Scheduled gas production
  • 2017: Scheduled commissioning of the LNG plant


Geographical, economic and technical aspects




The Shtokman natural gas field, whose initial reserves are estimated at 3.9 trillion m3, is located 550 km from the Russian mainland and situated at a depth level of 340 m.

The project will operate under harsh climate conditions. For example, annual temperatures in the region vary from -50 degree Celsius to +33 degree Celsius.

The intended overall annual natural gas production is 71.1 billion m3. As regards LNG, an annual capacity of 7.5 million tones is envisaged.


Shtokman Development AG


Shtokman Development AG is headquartered in Zug, Switzerland. It is governed by Swiss law. However, as regards the environmental regulation, the Shtokman project is governed by Russian Law. Shtokman Development AG has opened company offices in Moscow, Murmansk, and the village of Teriberka in Murmansk Oblast.




Today, the shareholders of Shtokman Development AG are Gasprom, Total, and Statoil.

The company has currently a nominal share capital of 233 M CHF. Its statutory purpose is to develop and exploit the Shtokman gas and condensate field. As a project company, it will bear all the financial and engineering risks associated with the natural gas recovery and LNG production.


Contracts and Procurement Policy


Shtokman Development AG has put in place a “contracts and procurement policy”. The cornerstones of this policy are the following:

  • The company will develop contracts and purchase orders in a manner that is expected to obtain the lowest total evaluated costs […] with due consideration to health, safety and environment, quality and added value.
  • The contract and procurement function will follow, in full transparency, a reliable and auditable process.
  • A supplier's confidential information shall be protected.
  • It is forbidden to communicate private recommendations to specific candidate firms.
  • Russian contractors and suppliers are given priority, within a sound competitive environment. A specific local content policy has been put in place in this respect.


Local Content Policy


The aforementioned local content policy aims at the development of economics, business, and manpower of the Russian Federation. Its central stipulation proscribes that, when placing orders, Russian suppliers and contractors shall be given a preference if they are comparable with foreign competitors in terms of
  • experience, qualification, and certification;
  • work quality;
  • cost and timing;
  • liability and guarantees;
  • major terms of delivery and performance.

In addition to tapping into existing Russian know how, the local content policy also intends to develop the commercial and industrial know how of Russian companies through the Shtokman project, above all in the the Murmansk region. I should also emphasize that a transfer of knowledge, technologies, and know-how from international companies to Russian ones is expressly mentioned in the local content policy. Finally, the policy also addresses and regulates the tender process for local suppliers.


Ethics Policy


Shtokman Development AG has put in place an ethics policy which is, compared to its other constitutional documents, very detailed. It is basically a list of “Dos” in business including key concepts such as corporate fairness, entrepreneurship, professionalism, high quality business relationships, staff training, integrity, accountability, responsibility, respect, health, safety, protection of the environment, rejection of corruption, transparency, absence of discrimination, permanent dialogue with community groups, avoidance of conflicts of interest, work life balance, and stakeholder engagement.


Resources:

  • http://www.shtokman.ru/en
  • Extract from the Zug Commercial Register for Shtokman Development AG
  • Shtokman Development AG – Contracts and Procurement Policy
  • Shtokman Development AG – Local Content Policy
  • Shtokman Development AG – Ethics Policy
  • Shtokman Development AG – Stakeholder Engagement Plan
  • Thomson Reuters – Update 2, Talks to save Shtokman gas project go down to wire – June 22, 2012
  • Shtokman Review