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Outside View: Dutch want Yamal gas deal

By OLEG MITYAEV, UPI Outside View Commentator   |   Nov. 13, 2007 at 11:14 AM
MOSCOW, Nov. 13 (UPI) -- Dutch Prime Minister Jan Peter Balkenende proposed that Russian and Dutch companies headed by Royal Dutch Shell should jointly develop the richest gas fields on the Yamal Peninsula located above the Arctic Circle.

Although the Yamal Peninsula is in the sphere of strategic interests of Russian state-controlled natural gas monopoly Gazprom, the Dutch initiative may appeal to the Russian authorities.

On Nov. 7 top managers of the Dutch companies met with Russian Minister of Fuel and Energy Viktor Khristenko. Inspired by Gazprom's consent to Gasunie's participation in the construction of the Nord Stream gas pipeline, they expressed the desire to become partners in the development of gas fields on the Yamal Peninsula and the Kara Sea shelf.

A group of companies headed by Anglo-Dutch group Royal Dutch Shell, which also included Gasunie, GasTerra, Essent and Van Oord, offered its unique technologies for hydrocarbons production and processing, pipeline construction and the creation of man-made islands for oil and gas producing and processing facilities.

True, no concrete agreements on the joint development of Yamal have been reached yet. According to Khristenko, a joint working group will be set up to examine the Dutch proposals. In 2008 it will make its conclusions and only then may joint ventures be established to implement them.

As is known, Dutch companies have not negotiated possible Yamal projects with Gazprom, though the Yamal Peninsula and the Kara Sea shelf are in its strategic interest zone. Gazprom holds licenses for developing 26 Yamal fields (with total reserves exceeding 10 trillion cubic meters). There are future plans to annually produce 250 billion cu m of gas there. Gazprom intended to develop the Yamal fields on its own and drafted a development program in 2002, then estimated at $70 billion.

However, thus far Gazprom has only decided to develop the largest Bovanenkovskoye field, where production will start in 2011. The development of this field alone will require about $40 billion in investments. It is now clear the total amount of investments needed for the development of Yamal will tangibly grow.

After his meeting with Dutch businessmen, Khristenko assessed the number at $160 billion. Therefore, foreign investments will be quite handy. Besides, the minister acknowledged that Gazprom does not have all the technologies necessary for the development of the Arctic fields.

The whole experience of gas field development in Russia in recent years favors the Dutch companies' participation in the Yamal projects. Gazprom will not be able to commission new fields on its own, mostly because most investments are used not for oil production but rather for the purchase of outside, including non-core, assets.

Large gas projects of the past years -- the Sakhalin-II and the Kovykta projects -- were initiated by foreign investors, Shell and BP, respectively, and Gazprom later joined. This year Gazprom has finally decided to launch the development of the Shtokman gas condensate deposit in the Barents Sea (the deposit has been part of its plans for many years now) together with its foreign partners -- the major French oil company Total and Norway's StatoilHydro.

Life itself forces Gazprom to decide on the soonest possible development of the deposits, albeit with the help of Western companies. Its main operating fields in Western Siberia are nearly 80 percent exhausted, and it needs to commission new sources of gas supplies to meet its growing contractual export obligations.

According to the sector's experts, Shell, which ceded a controlling stake in the Sakhalin-II project to Gazprom last year, was promised compensation. The Russian authorities have probably decided that, considering the above factors, the time has come to fulfill this promise.

Unlike his Dutch colleagues, Jeroen van der Veer, Shell's president and chief executive officer, had a two-hour conversation with Russian President Vladimir Putin. After the conversation he said confidently that Shell intended to expand its participation in Russia by joining a giant long-term project of LNG and oil production on the Yamal Peninsula and the Kara Sea shelf.

Judging by all signs, the investment climate in the Russian oil and gas sector is improving.

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(Oleg Mityaev is an economic commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

© 2007 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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