Strengthening the strategic high north partnerships

When StatoilHydro won the contract to take part in the development of the enormous Shtokman gas field, which has enough gas for the entire European Union for seven years, it did not come as a surprise for the players in the Norwegian petroleum industry. StatoilHydro and numerous Norwegian companies with great experience in operating the rough and ice-cold arctic waters have already made their reputations in Russia, and they had won important contracts with the Russians before.

Still, the Shtokman contract is important to showcase that Norwegians are world leading in developing petroleum resources in the High North where there is a fragile environment and ecosystem. StatoilHydro’s contract was the result of a combined competence and long-term efforts from the Norwegian petroleum industry.
 
On the morning of October 25th Norwegian Prime Minister Jens Stoltenberg received a phone call from his Russian colleague, President Vladimir Putin. In this conversation President Putin informed the Prime Minister that StatoilHydro was to have a 24 percent share in the company that is to develop the Russian Shtokman field – the Shtokman Development Company (SCD).
 
The agreement gives StatoilHydro a 24 percent equity interest in Shtokman Development Company in which Gazprom (51 percent) and Total (25 percent) are the two other partners.
 
Shtokman Development Company will be responsible for the planning, financing and construction of the infrastructure necessary for the first phase of the Shtokman development and will own the infrastructure for 25 years from the start of commercial production. This includes offshore installations, pipeline to shore and the onshore processing plants for both liquefied natural gas (LNG) and piped gas.
 
It is vital for the Norwegian Minister of Foreign Affairs, Jonas Gahr Støre (right) to have a strong strategy for the High North. “The networks between Norway and Russia will be expanded, first and foremost in areas connected with energy and management of the Barents Sea,” he tells Norway Exports.
© Trym Ivar Bergsmo/
StatoilHydro

Sharing the Barents Sea
Jonas Gahr Støre, the Norwegian Minister of Foreign Affairs, recognizes the Norwegian petroleum industry’s Russian efforts through many years, but the Shtokman contract could be a substantial door opener for other fields.
 
“We already have a good relationship to Russia in many fields. Thus the doors are already open,” Gahr Støre says to Norway Exports. Final investment decisions will be made in 2009, and if StatoilHydro ends up investing substantial amounts in Shtokman, this is a ground breaking industrial project.
 
“This would engage new and important milieus on the Norwegian side. The networks between Norway and Russia will be expanded, first and foremost in areas connected with energy and management of the Barents Sea,” Gahr Støre says.
 
Since Norway and Russia are sharing the Barents Sea, there is a great responsibility for both countries. “We have the same need to make sure that petroleum activity and shipping do not harm the environment and the rich fishing resources in the ocean. We have this on our daily agenda, and more topics will come as the contacts develop,” the foreign minister tells Norway Exports.
 
Even if relations between Norway and Russia are strong, the Shtokman agreement could boost cooperation further.
 
“Cooperation contributes to create and strengthen trust. And increased trust reduces tensions. Norway and Russia are already dependent on having a cooperative relationship about many matters in the north in areas like petroleum development, the marine environment and the management of fish resources. The cooperation between StatoilHydro and Gazprom contributes to strengthening these relations,” Gahr Støre says.
 
High North Strategy
For the Norwegian Government a coordinated strategy for the high north is of vital strategic importance, and therefore the Shtokman contract was welcome news for Prime Minister Stoltenberg.
 
“I’m very happy about the Shtokman contract because it fills our High North Strategy with definite content, and it is a big recognition of the knowledge and competence which is found in StatoilHydro and the ability this company has in developing big offshore gas fields,” Stoltenberg says.
 
In the Shtokman field there is enough gas to supply the entire European Union for seven years, and Stoltenberg is very happy that a Norwegian company is taking part in the development of this field.
 
“This is important for the energy security in Europe and the world; it is important for the environment, and not in the least it is important because it is a big recognition of Norway’s biggest company. And it is also important because this will develop the neighbourliness and cooperation between Russia and Norway,” Stoltenberg says.
 
Russia’s President Vladimir Putin has emphasized the importance of a strategic partnership between Norway and Russia for many years, and when StatoilHydro and Gazprom signed their agreement, it emphasized the patient building of trust over a long period of time. “This gives concrete content to the strategic partnership between Norway and Russia,” Stoltenberg says.
 
The Norwegian Prime Minister also thinks it is important for StatoilHydro to be present in the Shtokman field because of the considerable Norwegian expertise in environmental exploitation of petroleum resources. “The participation also underlines our joint responsibility to ensure a sustainable management of the resources in the Barents Sea,” says Stoltenberg.
 
For over 30 years, Norway has acquired massive competence as the world’s leading offshore petroleum producer.
 
“StatoilHydro has gained an exceptional level of competence and experience from working offshore under demanding conditions on the Norwegian Continental Shelf. In addition, the company has worked in Russia for a long time. I share the expectations of the company that its participation will contribute to the successful development of the Shtokman field. This participation also shows that StatoilHydro is successful in competing for the major tasks internationally,” says Minister of Petroleum and Energy Åslaug Haga.
 
StatoilHydro has massive experience from petroleum exploration in harsh and arctic waters, and the Eirik Raude drilling rig has served them well.
© Øyvind Hagen/
StatoilHydro

Statoil-Hydro Merger a Key
The Shtokman field was discovered 18 years ago, and Norwegians with Statoil, Hydro and the Government have had a constant dialogue with the Russians, but Gazprom and Russian authorities never considered Statoil and Hydro as separate companies.
 
“It was demanding to explain in Moscow and to Russian authorities that Norway wanted to participate in Shtokman but that we had two companies that wanted to take part in Shtokman. Now we have one coordinated Norwegian effort through StatoilHydro. That was some of the reason why our government supported the merger, and therefore I am happy to see this,” explains Stoltenberg.
 
The talks Jens Stoltenberg and the Norwegian Government have had with Russian authorities have been very important. The dialogue between the Bondevik Government and President Putin had earlier in the process has also been important. StatoilHydro is very satisfied with the support and backing it has received both from the Prime Minister and others.
 
“This agreement represents an opportunity for StatoilHydro to participate in the development of Shtokman phase 1,” says Helge Lund, CEO of StatoilHydro. “We are looking forward to cooperating with Gazprom and Total to realize this frontier project.”
 
“The agreement signed today will open a new page in our cooperation with the merged StatoilHydro,” says Alexei Miller, Chair of Gazprom. “We have giant reserves of gas in the Barents Sea, while our partners from Norway have good experience in the production and transportation of gas in harsh arctic conditions. Our joint efforts will be the keystone of success in the Arctic.”
 
The agreement is the result of long and determined work from both Statoil and Hydro.
 
“Leveraging our technology, industrial experience and expertise from large offshore developments can provide long-term growth opportunities in Russia,” Mr Lund adds. “We believe Shtokman can be a catalyst for developing and adopting technologies capable of operating efficiently and environmentally-safely in cold and harsh conditions. The entering into of this agreement is a strong demonstration of the joint capabilities of the merged company StatoilHydro.”
 
The project planning phase aims at establishing an acceptable technical and commercial basis for the final investment decision, which is expected to take place in the second half of 2009. Until the final investment decision is made, StatoilHydro’s exposure is limited to the company’s share of the cost of planning and studies.
 
The Shtokman field, located in the Russian part of the Barents Sea, is the world’s largest undeveloped offshore gas field with gas initially in place (GIIP) at around 3,700 billion cubic metres (bcm). The annual production is estimated to be 23.7 bcm for the first phase. The basis for phase 1 includes both LNG and piped gas.

StatoilHydro’s experience with production of Liquefied Natural Gas (LNG) on the Snøhvit field in the Barents Sea made them a natural partner for Gazprom on the Shtokman field.
© Even Edland/ StatoilHydro

 

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