France’s Total joined the project to develop the Shtokman gas condensate field in northern Russia. The agreement to involve the company was reached in a brief telephone conversation between the presidents of Russia and France on July 12. The necessary documents were drafted at a breathtaking speed, enabling Russian energy giant Gazprom and Total to sign a relevant agreement the next day.
In the contract the parties agreed to set up a company to handle financial, geological and technical risks of the project’s first stage. Total will hold a 25% stake and Gazprom will control the remaining 75% in the company.
In addition, Total can increase its capitalisation by adding part of the Shtokman resource base to its reserves.
Other foreign companies can also enter the project, but Gazprom will retain at least 51% in the new special purpose vehicle and the entire stake in its subsidiary Sevmorneftegaz, the owner of the mineral licence, and will control the entire oil and gas output. Total has estimated its investment in the project at $4bn-$5bn. The parties have not disclosed the scheme for returning funds.
At the first stage, 23.7bn cu m of gas will be produced annually. There are plans to deliver liquefied natural gas to the United States, a prospect the country has been interested in since the launch of the Shtokman project. Total will cede its share to the Russian company in 25 years; the other potential participants in the project are likely to do the same.
Gazprom plans to implement three consecutive stages, when up to 94bn cu m of gas should be produced, on its own.
Gazprom has been selecting a partner in Shtokman since 2002, and Total was among the candidates. However, last autumn [Gazprom CEO] Alexei Miller rejected all bidders for the development project, including Total, saying Gazprom would develop Shtokman on its own. Has the project received a go-back command? It has not. Things seem to be lining up into a rather logical scheme. Last year, Western companies planned to develop Shtokman as large shareholders. Also, Russia was sharply criticised last year for refusing to sign the unfavourable Energy Charter and give foreign companies access to Russian pipelines.
Western partners had the idea of producing gas in Russia on their own and transporting it to their countries. Russia did not give in to pressure and demanded to know how much it would get in return.
Why should it open its doors to foreigners when they close the doors to European energy markets? It was then that the Shtokman failure took place: Gazprom said it would develop the project on its own, while Western companies could be invited to help the Russian gas monopoly as contractors.
A high-ranking official from Total said his company was no servicing company.
What has changed since then? European parliamentarians recently adopted a law under which companies in countries outside the European Union could buy assets in the EU on a parity basis. In other words, those seeking to buy a company for a couple of billion dollars in Europe should know that Europeans would in turn buy comparable assets in your country.
Gazprom has been hopelessly seeking access to European energy markets, in particular gas distribution networks in Germany and France for a long time.
Now that clear rules of the game have been defined, Shtokman’s turn has arrived.
A spoon is dear when lunchtime is near, as the phrase goes in Russia.
Taking into account the above, Total and other potential participants in the project will work in more favourable conditions in Russia. Some companies which sought access to Shtokman last year – Norway’s StatoilHydro or US ConocoPhillips – could take part in the project. This depends on whether they are ready to make concessions in transferring their assets to Russia.
Gazprom plans to get access to French energy giant Total’s assets in exchange for Shtokman, such as parts of deposits or gas distribution networks, or regasification terminals.
“We want the other bidders to improve their offers, for them to be as interesting as Total’s ones,” said Alexander Ananenkov, deputy head of the Gazprom Management Committee.The deal with Total is the last in a series of joint ventures Gazprom has established in Germany, Italy, Britain and France. Gazprom has a joint venture with BASF in Germany and close contacts with Ruhrgas, which controls about 7% in Gazprom and whose official sits on the company’s board. Gerhard Schroeder, former German Chancellor, heads a Russian-German consortium handling the construction of the Nord Stream gas pipeline. Gazprom also has friendly relations with Italy’s Eni and Enel. And when Russian-British relations deteriorated, BP agreed to set up a joint venture with Gazprom in exchange for its assets.
A tougher policy by Sarkozy? Meanwhile, there is another reason to consider. Most international observers said before the recent presidential election in France that as soon as Nicolas Sarkozy became president, he would pursue a tougher policy towards Russia than his predecessor Jacques Chirac.
However, after a closer dialogue between Sarkozy and Vladimir Putin following the latest G8 summit in Germany the French press came to the conclusion that the two leaders had found a common language.
I will not argue which of the two presidents is more democratic, but both are absolute realists and pragmatists. French businessmen have traditionally favoured close and pragmatic relations with Russia, and Nicolas Sarkozy cannot but take this fact into account.
The news came before Total and Gazprom reached agreement that France and Russia would begin considering a visa-free regime for their nationals.
That’s about the whole story.
