The Shtokman field is a huge deposit discovered in 1988 to the east of Murmansk in the Barents Sea, the site is located about 550 kilometres from the mainland well beyond the Arctic Circle. The field lies at a depth of about 2000 metres, in a spot where the Arctic waters sink to 320-340 metres. The area is subject to the passage of icebergs, some of which can reach a weight in excess of one million tonnes.

Shtokman is estimated to hold 3.200- 3.700 billion cubic metres of natural gas and a further 31 million tons of the so-called “condensate” (liquid hydrocarbons that can be refined through appropriate chemical processes). In order to develop this huge natural reserve around 50 billion dollars will be needed. The commercial duration of the deposit is estimated in 50 years, at an annual production rate of around 70 billion cubic metres of gas and of 600 thousand tons of condensate. If we consider that the largest Russian natural gas deposit on the mainland, the Kovytka field (in Siberia), has reserves estimated at 2.000 billion cubic metres of gas, and that the one-year gas production of Norway, one of the world’s main producers, doesn’t reach 85 billion cubic metres, we can understand the strategic importance of Shtokman.

The licence for gas extraction belongs to Sevmorneftegaz, a company specialised in the exploitation of deposits in the Arctic continental shelf and controlled entirely by Gazprom. In September 2005 Gazprom selected, from a special short list, five ‘majors’ with whom begin detailed commercial negotiations with in view of their taking part in Shtokman’s development and resources. The five are the American ChevronTexaco and ConocoPhillips, the French Total, and the Norwegian Statoil and Norsk Hydro. Last October, however, Gazprom announced that it wanted to develop the deposit without foreign partners, accusing the five companies of not having provided sufficient financial assets given the importance of the project. A decision which has produced considerable scepticism as regards the possibility of seeing Shtokman’s gas on the market in the short term. Many believe that Gazprom has neither the technology nor the credit possibilities necessary to developing the field on its own. And even were it able to do so, Shtokman would enter production far later than the programmed timeline (perhaps later than 2013). At the end of last January, Gazprom retraced its steps and announced its will to start a new round of negotiations with the companies on the shortlist.

The five majors have never abandoned hope in taking part in the project, even if they would have to be content with a lower profile role in comparison with the one proposed until last autumn. In fact Gazprom is opening up again to shortlist companies but offering the chance of participating in the deposit’s development as a sub-contractor as opposed to a partner. At the beginning of February, Putin confirmed that Gazprom will hold the only licence to the field but that at the same time studies were being conducted to define ways of involving foreign companies, whether in the extraction phase or in the production of liquefied natural gas. The Prime Minister also said that Norwegian companies stood a strong chance of being involved in the project. Government officials from the Murmansk region went as far as to say that Gazprom cannot develop Shtockman without foreign partners - in particular without the Norwegian Statoil and Norsk Hydro, which possess the right experience and technology. As regards Statoil and Norsk Hydro although they have never excluded an agreement on Shtokman they have made clear that developing deposits without holding a share of the resources is a condition that they are not used to. As concerns Total, the French Energy Minister has confirmed that Total and Gazprom are in negotiations.

Russia has every interest in making the deposit operative as soon as possible, at least by 2010 or 2011. It is estimated that by 2014 European gas demand will increase by 200 billion cubic metres (currently it is around 500 billion a year) and that at the same time the United States market will need greater liquefied natural gas supplies. Therefore, one of the priorities of the investment programme (24 billion dollars) that Gazprom will carry out in 2008, is the development of Shtockman. Gazprom, however, needs partners with reliable experience in the exploitation of deep water offshore deposits and with proven technologies in the field of liquefaction of natural gas. According to Sevmorneftegas, they will need 156 wells (of which approximately 40 underwater) to develop the deposit: 144 wells for production, 3 for monitoring and 9 as reserves. At least 4 floating 184.000 tons platforms anchored on the seabed, able to resist to ice and possible collisions with icebergs, will be necessary. It will be necessary to place 4 gas pipelines on the seabed (which is very irregular in that particular area) of slightly more than a metre in diameter, these will link the offshore platforms to the terminals in Teriberka, in the Murnmansk region, 565 kilometres distant. From here onwards Shtockman’s gas, without ever leaving Russian territory, will take it’s way to Vyborg, 1400 kilometres to the south, on the Baltic Sea, where it will be pumped through the North Stream as far as Germany.

In 2004 Russia produced over 607 billion cubic metres of gas (around the 22% of the global production). The 70 billion cubic metres that will come from the Shtockman field every year (about the 2,5% of the global production) will enforce the Russian position and allow the Kremlin to sustain it’s offer over the long term and regulate gas production on the market, increasing or decreasing in accordance to requirements. Beyond the quantities produced, Shtokman’s gas has an added value which is decisive for Moscow, because it can make the Russian offer more flexible and less tied to the European market. Thanks to the exploitation of the deposit, whether through gas pipelines, or through LNG technology, Gazprom will be able to diversify it’s market outlets through the use of gas tankers capable of supplying Europe, Canada, the east coast of the United States and Mexico. In addition to this the low Arctic temperatures will permit savings on the gas liquefaction process; the lack of permanent sea ice and mainland permafrost will make the transportation of gas easier than in the other Arctic deposits; after passing through the Kola Peninsula, the Shtockman field’s gas will reach Europe without passing through third countries.

To the European Union, Russian and Gazprom’s reinforcement in the energy sector can be a threat. However, especially in Brussels, there are fears that the main global producers of hydrocarbons will have neither the ability, nor the will, to invest in gas and oil production in order to satisfy an energy demand that will increase noticeably over the next few years. If the rise in demand doesn’t correspond to a proportioned rise in offer, the conditions would be created for a sharp rise in prices. It is to be expected that, in the specific case of the Shtockman field, the European Governments will push, and try to promote, the rapid development of the deposits.

Due to it’s size and the fact that its opening could open the way for Russian gas towards the US market, the development of the Shtockman field is destined to influence the balance of the global gas market. Russia will be able to greatly enforce its position as the world’s leading gas producer, it’s offer will become more flexible thanks to LNG technology and it can set out to become the regulator of the natural gas market (as Saudi Arabia is for the oil market).

Gazprom, however, has no experience in developing giant offshore deposits in remote and difficult geographical areas like Arctic. Developing Shtockman will be a huge technological and financial enterprise. Gazprom itself admits, albeit indirectly, its difficulties in managing the project by itself through trying to involve, even as contractors, foreign companies. Thus it can be expected that the development of Shtockman will be carried out by Gazprom and by one or more non-Russian major, able to guarantee the essential technology and financial cover. Which companies will be involved and in what role remains an uncertainty. After the recent worsening of relations between Washington and Moscow, Gazprom could also go so far as to exclude the American companies, but it could then find it harder to enter the United States gas market. This would lead Gazprom to divert all of Shtockman’s production to Europe. All considered this is a prospect that the European Union might welcome, both from the standpoint of reducing Moscow’s chances of diversifying its customer base and in terms of an increasing European gas demand remaining without an adequate supply - something that could trigger a rise in price in which the EU States would have everything to lose.