Thoughts on Gazprom's Development of the Shtokman Gas Field

Gazprom appears to be aiming to develop Shotkman mainly on its own. Therefore Gazprom's access to financing is critical -- Gazprom almost certainly won't be able to finance Shtokman from internally generated cash flow.

Gazprom's forecasted budget is still up on the Russian version of the Moscow-based Institute of Energy Policy's website site. The budget is included on page 22 of the December 7, 2005 presentation here: (in Russian): http://www.energypolicy.ru/pv.php?id=1002396 (the English version of this presentation is not available)

There are three highlighted lines towards the bottom of the page, first (towards the top) reads: (translated from Russian): Total Revenues,
Second highlighted line reads: Total Spendings (ie costs), third reads: total debt. All numbers are in US dollar billons.

Summary: In 2012, Gazprom will have revenues of $US46.14 billion and spendings (costs) of $US 74.37Bn, leaving debt to increase from $21.0Bn in 2005 to $119.05Bn in 2012.

Assumptions of forecasted budget: 1. constant price domestically and in Europe and CIS of Gas (maybe reasonable, although likely the price will rise a bit), 2. slower internal Gazprom cost growth than historical, 3. Capex includes Yamal, NEP, Shtokman, but does not count oil, petrochemical, power capex at Gazprom 4. interest rate = 5.6%. 5. lower Russian gas production offset by higher Central Asian production (in which Gazprom collects a tariff) 6. Gas transportation tarrif increases from USD 0.82 per tcm to USD 2 per tcm by 2008 (likely to happen).

It seems to me that as soon as European banks realize the dire situation of the finances within Gazprom, -- if the projection above is accurate and the assumptions are reasonable -- they won't be willing to finance the Shtokman project. And/or the Russian government and Gazprom will have to become more flexible about revenue sharing and access to the project, which may or may not happen -- it depends on the political situation in Russia, which is the subject of another article.

I would lean towards more delays at this point as European banks worry about repayment -- and Russia is not extremely enthusiasic about pushing the project through as there is a saying in Russia: "Why not leave the oil for our grandchildren?" -- they acknowledge that oil and gas is non-renewable and also feel the price they get now is on the low side, so lower supply from less projects will encourage a higher price from their existing supply.