Russia's gas monopoly Gazprom delivered a blow to international energy firms, saying it would develop the $20 billion Shtokman field alone and divert to Europe supplies that had been intended for the United States.
"Gazprom has decided the project will go ahead without international participation and Gazprom will own 100 percent of it," Gazprom chief executive Alexei Miller told Kremlin-funded English language television station Russia Today. Miller's words stunned the five firms that had been vying for a stake in development of the Arctic field, which contains more than enough gas to supply the whole world for a year.
The contenders were Total, Statoil, Norsk Hydro, ConocoPhillips and Chevron. The move follows a diplomatic storm over other major foreign oil projects in Russia, with oil majors Royal Dutch Shell, Exxon Mobil and BP Plc all under pressure from the Kremlin to accept less favorable terms or even cede control over projects.
Russian officials deny they are seeking to kick foreigners out of the country. "There is a general perception that increasingly politics are driving these big energy deals. There will be many people who'll see the hand of politics in this," said Stephen O'Sullivan, head of research at Deutsche Bank in Russia.
At Gazprom's request, the five Shtokman hopefuls had observed strict secrecy about the repeatedly postponed Shtokman decision.
Each of them had tried to woo Gazprom by offering shares in their own projects and sharing their expertise in liquefied natural gas (LNG), a frontier technology that was supposed to be the key to shipping Shtokman's gas to U.S. markets.
"The foreign companies were unable to provide the assets required for the capacity of the Shtokman resources," Miller said.
President Vladimir Putin flagged a change of strategy last month, promising Germany's Chancellor Angela Merkel that Gazprom would soon announce a move to help supply more gas to Europe, where Germany is already Gazprom's top client.
Miller said Gazprom would prioritize pipeline exports to Europe, its "No.1 market", over production of LNG and exports to the United States, although he said that foreign contractors would still be needed for an LNG part of the project.
It was not clear if Gazprom still aimed to build a dedicated LNG terminal for Shtokman or if it would liquefy the gas elsewhere -- a move which could mean huge savings, since LNG plants often overrun their multi-billion dollar budgets.
Under Gazprom's new plan, the bulk of Shtokman gas will go to the Nord Stream pipeline under the Baltic Sea to Germany.
Gas for that pipeline is already expected to come from the Yuzhno-Russkoye field, partly owned by Germany's BASF and E.ON and Dutch Gasunie. It was not immediately clear what effect the change of Shtokman strategy would have on that field. Gazprom declined to comment. Analysts have said Shtokman has become a political football in Russia's relations with the West, helping the Kremlin to leverage better terms from the United States for entry to the World Trade Organization and furthering Gazprom's ambitions of becoming an energy player with a global presence.
Earlier this year U.S. Vice President Dick Cheney warned Russia against using its energy wealth as a tool of intimidation and blackmail.
Since then the Kremlin has cracked down repeatedly on all the biggest foreign projects, the value of which runs into dozens of billions of dollars.
Gazprom's shares closed up 2.4 percent at 300.18 rubles on the announcement, but its abrupt rejection of foreign partners for Shtokman may now leave it with another problem: how to fund a huge and technically challenging project -- out of helicopter range in the Arctic Barents Sea -- without relevant experience.
"It will have to rack its brains now on where to get about $11-12 billion ... to develop the project without foreign investment," said Denis Borisov, analyst at Solid brokerage.
Oleg Maximov at Troika Dialog brokerage said the long-delayed development of Shtokman would now go back on the shelf for a long time.
"The project is highly capital-intensive and requires technology that Gazprom does not have," he said.
