Reuters: UPDATE 4-Gazprom names 5 foreign firms for Arctic gas project: “The short list is a setback for supermajors Royal Dutch/Shell and Exxon Mobil, both of which are already involved in big projects off Russia's Pacific coast.”: Posted Saturday 17 Sept 2005

Friday 16 September 2005  

By Mikhail Yenukov

MOSCOW, Sept 16 (Reuters) - Russia's Gazprom on Friday unveiled a short list of five foreign companies being considered as partners in a $20 billion Arctic gas project that could supply U.S. markets for half a century.

The firms, eyeing a slice of one of the most sought-after prizes in the energy sector, were named as Norway's Statoil (STL.OL: Quote, Profile, Research) and Hydro (NHY.OL: Quote, Profile, Research), U.S. firms Chevron (CVX.N: Quote, Profile, Research) and ConocoPhillips (COP.N: Quote, Profile, Research), and France's Total (TOTF.PA: Quote, Profile, Research).

Gazprom, the world's largest gas producer, said it would keep 51 percent of the project and would hold further talks to select a final line-up to help it develop its first liquefied natural gas (LNG) project.

"So far there hasn't been any decision on how to divide up the shares among the foreign participants," Gazprom's Chief Executive Alexei Miller told reporters.

Miller said the final deal would be signed in early 2006, by which time the list may be whittled down to two or three names. He confirmed the earlier announced start-up date of 2010, despite reports it could be delayed until 2012.

Miller also said the gas marketing side could be structured in a different way as Gazprom has received offers from firms such as Sempra (SRE.N: Quote, Profile, Research) to participate only as sellers.

Shtokman's challenges include pumping gas in icy waters 550 km (340 miles) north of Norway and building a gas liquefaction plant in Russia's inhospitable far north.

But they are matched by the potential rewards of tapping gas reserves of 3.2 trillion cubic metres, more than annual global consumption.

The cost of the project has been put at up to $20 billion, but with budgets ballooning at other, smaller LNG projects, some experts say Shtokman will cost far more.

"Cost estimates are placed at $20 billion ($1.09 per barrel of oil equivalent), however we believe this estimate is woefully out of date and expect final costs to be considerably higher," Citigroup analysts said in a written research.

Gazprom supplies a quarter of Europe's gas via pipelines and is keen to supply U.S. markets too, but as yet it has no LNG facility to super-cool its gas for tanker shipment.

LNG is gas cooled to minus 259 degrees Fahrenheit (minus 162 Celsius) into a liquid, which shrinks to less than 1/600 of its original volume.

Once it arrives at a regasification terminal, it is returned to a gaseous state and fed into pipelines.

TOTAL SURPISES

Sergei Glazer, director at Vostok Nafta, which helps manage $1.3 billion in assets of which 90 percent are shares of Gazprom, said the shortlist was slightly unexpected.

"I though there would be one company from Norway and one from Japan. But it is a very pragmatic list anyway," he said.

"The choice of Total is also a bit unexpected, but on the other hand they have been closely cooperating with Gazprom in Iran on the South Pars field," he added.

He said the news was extremely important for all five winners as they were getting access to new reserves, but added that it was probably most important for Gazprom itself to finally enter the booming LNG business.

The short list is a setback for supermajors Royal Dutch/Shell (RDSa.L: Quote, Profile, Research) and Exxon Mobil (XOM.N: Quote, Profile, Research), both of which are already involved in big projects off Russia's Pacific coast.

It also leaves out two Japanese firms, Sumitomo (8053.T: Quote, Profile, Research) and Mitsui (8031.T: Quote, Profile, Research), which have experience in building LNG plants, technology that Gazprom does not have in-house.

Statoil made one of the most high profile bids, asking for a 25 percent share in return for 10 percent of its Snoehvit project. It said on Friday Snoehvit would go $1.1 billion over the planned budget and start-up would be delayed by 8 months.

Many analysts say Shtokman will mark the start of the phase when Russian energy growth will be based on gas rather than oil.

"Shtokman is a good example of Gazprom's various asset swaps which is something that the market has not yet valued into its share price," said Alexander Schwarzkopf, hedge fund manager at London's Altima Partners, running $1.5 billion of assets, a third of it in Russia.

Gazprom's local shares rose 2.6 percent at 1245 GMT, while London-listed ADSs were up 3.3 percent to $56.75.

(Additional reporting by Dmitry Zhdannikov, Tom Miles, Elif Kaban)  

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