Russian U-turns at Shtokman: Drivers and Consequences

On October 9, Gazprom announced that gas supplies from its giant Shtokman gas field in the Barents Sea will be channeled primarily to Europe via the planned North European Gas Pipeline (NEGP), reversing earlier plans to ship Shtokman gas to North American markets in the form of liquefied natural gas (LNG). Furthermore, Gazprom CEO Aleksey Miller said that Gazprom intends to develop Shtokman on its own, abruptly ending negotiations with potential international partners because "the foreign companies were unable to provide the assets that would correspond, by the size and quality, to the reserves of the Shtokman field."

If sustained and implemented, Gazprom's sharp change of course on Shtokman has several key implications for energy markets, including

* The decision marks a statement by Russia to the European market. However, the upstream supply arrangements remain to be clarified before the European gas market will feel assured of incremental volumes.
* The Shtokman decision underscores CERA's view on global LNG that LNG supply will remain the constraint point in the global LNG chain, with aboveground issues such as international governmental relations and, in particular, partnership alignment presenting major challenges.
* A combination of geopolitical, Russian, and corporate drivers explains Gazprom's growing emphasis on pipeline delivery and European markets, but the company's upstream priorities are less clear (Yamal Peninsula development may now actually be on a faster track than Shtokman).
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Note: The authors wish to acknowledge the contribution of CERA's Thane Gustafson.

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