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Gazprom Natural Gas Project in Arctic Seas in Doubt At Gazprom, Views Conflict on Viability of Barents Sea Gas Project
(about 5 hours later)
MOSCOW — Gazprom, the Russian energy giant, has long presented the Shtokman field in the Barents Sea as the jewel in the crown of its natural gas reserves, a find that may hold enough gas to meet global demand for a year. MOSCOW — Gazprom, the Russian energy company, has long presented the Shtokman field in the Barents Sea as the jewel in the crown of its natural gas reserves, a find that might hold enough gas to meet global demand for a year.
But Gazprom has struggled for years to develop the field, and this week executives at the state-controlled company presented conflicting views of whether the project was even viable. But Gazprom, a state-controlled company, has struggled for years to develop the field. This week, executives at Gazprom presented conflicting views of whether the project was even viable.
According to news agencies, Vsevolod Cherepanov, chief of Gazprom’s development department, said the Shtokman field now appeared uneconomical to develop.According to news agencies, Vsevolod Cherepanov, chief of Gazprom’s development department, said the Shtokman field now appeared uneconomical to develop.
Mr. Cherepanov, who was in Norway for a meeting with some of Gazprom’s partners in the project, said the latest engineering approach to tap the gas had failed.Mr. Cherepanov, who was in Norway for a meeting with some of Gazprom’s partners in the project, said the latest engineering approach to tap the gas had failed.
“All parties have come to the conclusion that the financing is too high to be able to do it for the time being,” Mr. Cherepanov said, according to Reuters. He said an investment decision on a new approach would be postponed until 2014.“All parties have come to the conclusion that the financing is too high to be able to do it for the time being,” Mr. Cherepanov said, according to Reuters. He said an investment decision on a new approach would be postponed until 2014.
Bloomberg quoted Mr. Cherepanov as saying that “phase one has been paused.” Bloomberg News quoted Mr. Cherepanov as saying that “Phase 1 has been paused.”
But in Moscow, a Gazprom spokeswoman said Mr. Cherepanov’s comment had been misconstrued as suggesting that the company had abandoned Shtokman altogether. Gazprom, she said, has no intentions of shelving the project indefinitely. But in Moscow, a Gazprom spokeswoman said Mr. Cherepanov’s comment had been misconstrued as suggesting that the company had abandoned Shtokman altogether. Gazprom, she said, had no intention of shelving the project indefinitely.
“Company Gazprom is continuing negotiations on the Shtokman project,” said the spokeswoman, who declined to be identified in keeping with company policy. She said that Mr. Cherepanov “did not express himself correctly.”
The spokeswoman said the company would issue a full clarification on Friday.The spokeswoman said the company would issue a full clarification on Friday.
Gazprom formed a consortium with Total of France and Statoil of Norway in 2008 to develop the Shtokman field. The companies planned to sell the fuel both through pipelines and as liquefied natural gas. Gazprom formed an alliance with Total of France and Statoil of Norway in 2007 to develop the Shtokman field. The companies planned to sell the fuel both through pipelines and as liquefied natural gas.
Shtokman’s vast reserves gave Gazprom the upper hand in negotiations with potential partners — the Western multinationals whose technology it needed to get at the gas. Shtokman’s vast reserves gave Gazprom the upper hand in negotiations with potential partners — the Western multinational companies whose technology it needed to get at the gas.
The Shtokman field was discovered in 1988, and in the early 1990s Gazprom began talks with a variety of potential partners. As negotiations dragged on and Gazprom turned down one set of partners and recruited another, the industry’s agenda shifted to shale gas and global gas prices started to drop. The consortium of Gazprom, Total and Statoil was formed in 2007. The Shtokman field was discovered in 1988, and in the early 1990s Gazprom began talks with a variety of potential partners. As negotiations dragged on and Gazprom turned down one set of partners and recruited another, the industry’s agenda shifted to shale gas, and global gas prices started to drop.
Even before Mr. Cherepanov’s comment, however, the consortium appeared to be unraveling. Even before Mr. Cherepanov’s comment, however, the alliance appeared to be faltering.
The three companies missed a deadline to make a final investment decision in June. Then, last month, Statoil wrote off the equivalent of $336 million in costs related to Shtokman. The Norwegian company said at the time that it was still in talks with Gazprom about the project.The three companies missed a deadline to make a final investment decision in June. Then, last month, Statoil wrote off the equivalent of $336 million in costs related to Shtokman. The Norwegian company said at the time that it was still in talks with Gazprom about the project.
Meanwhile, Total is to decide on Sept. 4 whether it will continue as a member of the consortium, the news agency Interfax reported Wednesday. Total is to decide on Sept. 4 whether it will continue as a member of the group, the news agency Interfax reported on Wednesday.
If the consortium does collapse, its failure will surely be seen as another concrete sign of the damage inflicted on Gazprom by the success of the shale gas industry in the United States. Gazprom's sales in Europe are already slumping. If the alliance does collapse, its failure will surely be seen as another concrete sign of the damage inflicted on Gazprom by the success of the shale gas industry in the United States. Gazprom’s sales in Europe are already slumping.
Shale gas supplies in North America have expanded rapidly and now meet domestic demand. Countries like Qatar, which intended to export liquefied natural gas to the United States, have been sending supplies to Europe instead. That has resulted in lower prices, hitting Gazprom’s profits and undercutting the economic feasibility of costly project like Shtokman. Deep under the Barents Sea, the Shtokman field holds an estimated four trillion cubic meters, or 140 trillion cubic feet, of gas, enough to supply the entire world for about a year. But the field lies far above the Arctic Circle, 550 kilometers, or 340 miles, off the Russian coast, in an area buffeted by fierce winds and storms. For energy companies, the climate, ice and darkness for six months of the year all present formidable engineering challenges.
Deep under the Barents Sea, the Shtokman field holds an estimated 4 trillion cubic meters, or 140 trillion cubic feet, of gas, enough to supply the entire world for about a year. The administration of President George W. Bush saw it as a means to help the United States to diversify energy imports away from the Middle East.

This article has been revised to reflect the following correction:

But the field lies far above the Arctic Circle, 550 kilometers, or 340 miles, off the Russian coast, in an area buffeted by fierce winds and storms. For energy companies, the climate, ice and darkness for six months of the year all present formidable engineering challenges. Correction: August 30, 2012
The Russian government relies on oil and natural gas taxes for about 60 percent of the federal budget. Russia and Saudi Arabia are now roughly tied in oil production, each pumping around 10 million barrels a day. To maintain this level, however, Russia will need to develop an offshore industry because its fields in Siberia are in decline, so it has moved aggressively to open its Arctic waters to international oil development.

An earlier version of this article misstated the date of the companies’ alliance in one instance. It was formed in 2007, not 2008.