It has been an uncertain week for employees of Shtokman Development AG (SDAG). On Monday, Interfax reported that Shtokman’s board of directors had decided to slash costs by 70%, potentially cutting jobs in its offices in both Paris and Moscow, as well as possibly cutting down on the services of tax and legal consultants. An overall budget of around $30 million per month will therefore be cut by some $20 million – putting a number of engineers and other professionals involved in the initial design phase of the project out of work.
The actual number of staff reductions will depend on a final discussion at next week’s operating committee, where managers will also discuss whether or not Shtokman’s technological and business model will change; in particular whether the phases of the project, both on the coast and in the marine section, could be consolidated. Integrating the coastal phase could reduce capital expenditure –estimated by one source at $30 billion for the first phase – by 30%.
All these last-minute changes do not give outside observers the impression of a project on the verge of taking a final investment decision (FID). This has already been postponed several times since Gazprom, Total and Statoil signed the shareholder agreement back in February 2008. The FID was put off for a year in February 2010 because of the steep drop in LNG prices.
It was later decided that an investment decision on pipeline gas would be made in March 2011 and a decision on LNG in December 2011. However, at the latest SDAG board meeting in March this year it was announced that an integrated investment decision would be made after all, but not for another three months.
There were also rumours of disaffection among the shareholders last year, with Total and Statoil said to be unhappy about the lack of tax breaks for the project, and Gazprom said to have other potential partners in mind. Neither rumour was officially confirmed and Interfax understands the question of whether the foreign partners might withdraw from the project is no longer an issue.
Prime Minister, and now President-elect, Vladimir Putin said in February that “we will develop Shtokman regardless”. He announced last Thursday that offshore projects on Russia’s continental shelf would not have to pay export duty, while Arctic projects could see the natural resource extraction tax fall to just 5% of the cost of product sold.
Putin is set to be inaugurated as president in May and his apparent backing for the project is a positive sign that Shtokman could be on the verge of its final sanction. But the difficulties encountered so far suggest that this may not be the end of Shtokman’s painful birth.