UPDATE 2-Talks to save Shtokman gas project go down to wire

Fri Jun 22, 2012 2:45pm EDT

Related Topics

* Gazprom, Statoil, Total work behind scenes to reach new deal

* Barents Sea field has more gas than Norwegian shelf

* Shareholder agreement expires July 1

* Shell possible third partner for Gazprom

By Melissa Akin and Dmitry Zhdannikov

ST PETERSBURG/LONDON, June 22 (Reuters) - Negotiations to save a Gazprom-led consortium charged with developing one of the world's biggest natural gas fields continued on Friday, sources close to the consortium said as a Kremlin-imposed deadline drew near.

Gazprom's partners in the Shtokman Development Consortium, Statoil and Total, were in St Petersburg attempting to hammer out a new agreement, which could be announced at the Russian government's annual economic showcase that ends on Saturday afternoon.

"The process is ongoing. Nothing more to say," a spokesman for Gazprom, Russia's gas export monopoly, said on Friday.

Christophe de Margerie, chief executive of France's Total, and Helge Lund, head of Norway's Statoil, met with Gazprom CEO Alexei Miller at Gazprom's stand at the St Petersburg Economic Forum to discuss Shtokman's terms, Gazprom said.

The Kremlin is loath to permit the failure of the flagship project to exploit the giant Shtokman field, which holds 3.9 trillion cubic metres of gas, more than the entire Norwegian continental shelf.

One investor consortium has already failed. The project aims to extract gas from the seabed of the stormy Barents Sea.

Industry sources have said the Kremlin was hoping to announce progress at the forum, a traditional venue for flagship deals.

Russian President Vladimir Putin last month went so far as to instruct the partners to strive for a final investment decision on the project, which had eluded them for more than a year.

But talks centred instead on a new framework agreement for the project, whose current shareholder pact expires on July 1. Much of the design work has been thrown out and staff at the consortium's offices slashed, sources have said.

The consortium is leaning strongly toward an LNG-only version of the Shtokman development plan. This would abandon plans to pipe half the gas output to Russia's mainland for sale through the Nord Stream pipeline and instead focus on seaborne deliveries of the super-cooled liquefied gas.

Gazprom has said this year it is looking to bring in new partners, but Total and Statoil have not said they plan to quit the project.

Media reports have identified Royal Dutch Shell, already a partner of Gazprom in the Sakhalin-2 LNG project, as a likely third partner for Shtokman to help spread risk.

The International Oil Daily, a newsletter, reported on Friday that Shell would replace Total in the consortium. The report, quoting sources close to Gazprom, said the changes were understood to have been approved by Putin.

Putin hosted a meeting of top foreign and Russian energy executives late Thursday night and told Shell CEO Peter Voser he would welcome greater cooperation with Shell in Russia.

Such expressions of support have been made in the past, but not necessarily as a precursor to deals.

Analysts say Shell could also be a logical choice because of its large LNG portfolio and its marketing power.

The current shareholder agreement gives exclusive marketing rights to Gazprom, but analysts have speculated privately on a marketing role for Shell.

Shtokman, one of the world's biggest gas fields, was discovered in Soviet times, but development of the remote Arctic deposit has been repeatedly delayed by changes in development plans and cost estimates.

The latest blow to the field development has come from the shale gas revolution in the United States, which made exports of liquefied natural gas to the continent unattractive. Gas consumption in Europe also fell due to the economic downturn.

Gazprom has a 51 percent stake in the group, while Total has 25 percent and Statoil has 24 percent.

Shell and Statoil declined to comment.

"There are far too many rumours," a Total spokesman said.

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