UPDATE 2-Gazprom calls time on Shtokman on costs overrun

* Gazprom official says partners agree that costs too high
    * Partners "collecting new data" on developing Shtokman
    * U.S. shale gas boom, weak demand in Europe hit Shtokman
    * Shell may join the project
    * Investment decision not expected before 2014
    * Plan had been for Europe pipeline deliveries from 2016

    By Andrew Callus
    STAVANGER, Norway, Aug 29 (Reuters) - Development of
Russia's huge Shtokman gas field in the Barents Sea is on hold
indefinitely, top shareholder Gazprom said on Wednesday, finally
acknowledging the struggling project has been overtaken by
events in the global gas market and needs a rethink. 
    The project's failure is likely to be a blow for President
Vladimir Putin's plans to speed up the development Russia's
production of liquefied natural gas, super-cooled to a liquid
state for worldwide export on tankers. 
    Vsevolod Cherepanov, head of Gazprom's production
department, said its partners in the project, France's Total
 and Norway's Statoil, agreed with the
assessment that the project can not go ahead due to costs
    "All parties have come to the conclusion that the financing
is too high to be able to do it for the time being," Cherepanov
told a conference.
    The firms have been mired in talks for years over investment
and other issues pertained to the development of the remote
deposit, one of the world's largest with gas reserves of almost
4 trillion cubic metres.
    Gazprom has a 51 percent stake in the group, Total has 25
percent and Statoil has 24 percent. A spokesperson for Total
declined to comment.
    Plans to develop Shtokman, 550 km (340 miles) offshore in
the icy waters of the Russian sector of the Barents Sea, have
been complicated by a shale gas revolution in the United States,
which had been seen as a primary export market for Shtokman.
    Unwillingness by the Russian government, whose coffers are
highly dependent on oil and gas sales, to cut taxation has also
weighed on plans to launch the project.
    A slowing European economy has also hit demand for gas,
prompting the Russian Economy Ministry to cut its overall gas
export forecast for this year to 193 billion cubic metres (bcm)
from an earlier projected 212 bcm. 
    The Shtokman partners have postponed their investment
decision several times and last month Statoil said it had
written off around 2 billion crowns ($336.2 million) of
investment and handed back shares in the project after investors
failed to meet a deadline for an agreement. 
     Statoil officials said they remained in talks over the
project, while Total has indicated it remains interested it
    A Statoil's spokesman on Wednesday said the partners are
still in talks over the project's future.
    "We have a direct dialogue with Gazprom and still believe
that it should be possible to implement this project, but a
number of factors needs to fall into place," Jannik Lindbaek
    "There are huge resources and interesting opportunities on
Shtokman, but it requires an agreement on the commercial and
technical aspects. This is what we are working on now."
     While they struggle to reach an agreement, including on
commercial terms and a development option, Royal Dutch Shell
 was considering coming in as a partner for the venture,
replacing one of the smaller shareholders.
    Cherepanov confirmed that Shell has expressed its interest,
saying that it might also join along with a number of
engineering companies. 
    "That's a possibility," he said, adding that a final
investment decision on the first phase of the project would now
not come before 2014.   
    He also said that one issue holding up the project was the
need to find a liquefaction technique suitable for Arctic
conditions, and the review whether to use floating or subsea
    The consortium in its present form was established in 2008
with a view to producing 23.7 billion cubic metres of natural
gas per year. Gazprom had also previously tried to launch the
project, without a success, teaming up with several partners,
including Norsk Hydro, ConocoPhillips and
Fortum, who eventually quit the project. 
    Under current plans, Shtokman is due to begin pipeline
deliveries to Europe via the Nord Stream pipeline in 2016 and
start shipping more costly liquefied natural gas (LNG) from
    "We are collecting new data... We have extensive gas
resources. We shouldn't take hasty decisions," Cherepanov said.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at and follow us on Twitter @Breakingviews and at All opinions expressed are those of the authors.