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Shtokman investors betting on gas prices Environmental assessment released; no surprises but similar risks to Gulf disaster concern green groups; minor fisheries impact Sarah Hurst & Kay Cashman Petroleum News
The final investment decision for the $15 billion, phase 1 Shtokman gas field development will be made in March 2011, with first natural gas and gas condensate from the Barents Sea project scheduled for 2016, a senior executive with Shtokman Development Co. told reporters on May 19.
Shtokman Development’s deputy CEO Herve Madeo, who was attending an Arctic conference in Paris, confirmed the Feb. 5 announcement by the Swiss-registered joint venture of Gazprom (51 percent), Total (25 percent) and Statoil (24 percent). The giant gas field was discovered in 1988 by the former Soviet Union, and is estimated to hold 135 trillion cubic feet of recoverable gas.
In phase 1, Shtokman natural gas and gas condensate will be delivered via two 36-inch pipelines from a floating production unit, or FPU, 346 miles to landfall in the village of Teriberka, 62 miles northeast of Murmansk City in Russia’s Murmansk Oblast.
Madeo also told reporters on the sidelines of the conference that the decision for phase 2, the liquefied natural gas segment, will be made in December 2011, with first throughput in 2017. Those dates were also announced by the project operator in February.
If approved, Shtokman’s LNG plant will be in Teriberka.
Betting on the future Madeo told reporters “there are partners” in the Arctic project “who think that in 2017 the price of LNG will be right and will make the LNG project profitable. Therefore we have to go ahead with it. ... It is important that in 2011 people bet on the future.”
Increased demand for gas from Asia and other emerging gas markets, combined with a possible supply crunch in the second half of the decade, will be the main drivers behind the price increase, he said.
Initially, Shtokman LNG was slated for export to the United States, but increasing U.S. shale gas production is what prompted project shareholders to delay the entire project. The majority of Shtokman’s natural gas will now be sold to Europe via the planned Nord Stream pipeline. If the development is approved, a pipeline will be built from Teriberka to Volkhov in the Leningrad Oblast to link up with Nord Stream.
The reason the LNG portion of the project slipped from September of this year to December of 2011 was because of Russian concern over the environmental impacts of LNG facilities, Madeo said.
Environmentalists concerned In January 2009, Madeo said Shtokman Development would not employ the LNG technology being used at Statoil’s Snohvit field, preferring instead to “go for another LNG concept with 100 percent tested technology.”
At mid-May public hearings in Teriberka and Kola, just south of Murmansk, Shtokman Development presented materials on its plans for the offshore part of the Shtokman field and released an environmental assessment on the project that was widely criticized by environmental groups. The report, published by UK-based consulting company ERM in October 2009, has only recently been made available to the public.
Among other things, environmental organizations testifying at the meetings said the Shtokman Development has failed to present a plan on climate gas emissions for the project. Coordinator at Bellona Murmansk, Nina Lesikhina, stressed that the company should come up with a way of isolating climate gas emissions from the project.
The scoping report noted potential problems similar to those that occurred in the April 20 Deepwater Horizon blowout and resulting explosion and oil spill in the Gulf of Mexico — most of which appear in any offshore development assessment.
Potential risk factors include a well blowout, a risk that could be elevated during disconnection of the FPU in response to the presence of sea ice, the report said. (Shtokman lies in 1,050 to 1,120 feet of water near the edge of winter sea ice.)
An accidental release of hydrocarbons could also occur as a result of mechanical failure of the valves associated with subsea equipment or faults within the remote communications system, the report said.
A gas or condensate release along the pipeline route could happen as a result of loss of containment by the pipeline system, for example due to failure of welds between adjacent sections of pipeline, corrosion, damage by vessel anchors, trawl boards or iceberg scour.
Failure of the cement plug after well abandonment was a potential risk during the decommissioning phase, the report said. “As is the case with blowouts during drilling, the likelihood of this will be influenced by the amount of seismic activity in the area,” the report added.
In addition, marine diesel spills could occur offshore during any phase of the project “as a result of handling errors or mechanical failures during in-field refueling, or a collision involving construction vessels, non-project vessels, helicopters, icebergs and/or FPU.”
The key environmental risks are associated with an oil spill from the FPU or support vessels, or a gas and/or condensate release from the wells or pipeline, the report said.
All of the potential risks could be substantially mitigated by proper equipment and practices by the operator, the report noted.
The key environmental risks are associated with an oil spill from the FPU or support vessels, or a gas and/or condensate release from the wells or pipeline, the report said, the most sensitive of which are those near the pipeline landfall, particularly affecting seabirds, seals and migratory fish.
“The fishing sector is the most sensitive socioeconomic receptor as they could be affected via direct impacts to vessels or gear and secondary impacts derived from avoidance behavior or tainting of their target species,” the report said. “Potential impacts to other socioeconomic receptors including power plant cooling water intakes, ports, harbors and other shipping traffic will also need to be considered in the ESIA (Environmental and Social Impact Assessment).
There would be additional health and safety hazards presented by response operations to contain or recover a condensate spill.
“Condensate in particular is highly toxic and response operations could be complicated by the need for responders to wear breathing apparatus. In addition, oil spill response in sea ice conditions can be particularly challenging and the response techniques that are appropriate differ substantially from those that would be used during ice-free periods,” the report noted.
Report predicts small impact on fisheries The report was generally optimistic about the impacts on Barents Sea fisheries in the vicinity of the Shtokman and its pipelines and related facilities. The report analyzed possible impacts to fisheries due to onshore and offshore activities in all the phases of the project, including construction, operations, decommissioning and emergency scenarios.
“Impacts may result from onshore construction activities such as soil excavation leading to localized run-off and increased turbidity in coastal areas,” the report said. “However, the area affected is likely to be small and the effect temporary. Any impacts to fish populations ... will be minimal, short-lived and unlikely to cause significant decreases in catch.”
The area that would be affected by offshore construction activities is relatively small, according to the report: “Adult fish are capable of moving away from any significant disturbance.” Noise impacts during construction may displace fish, but “most fish will move away from areas of noise and will not suffer permanent damage as noise levels are unlikely to be particularly high.”
The presence of the project’s infrastructure during operations will reduce the amount of fishable areas, creating exclusion zones, but “the area covered by the exclusion zones will represent a small fraction of the available fishing grounds in the Barents Sea and is unlikely to significantly impact catch levels.”
An unplanned event such as a gas leak or major marine diesel spill could significantly impact fisheries, killing fish, the report said. “However, fish will move away from areas of pollution or physical disturbance and are able to metabolize some hydrocarbons once they have moved into cleaner water. Another issue is the potential for tainting of fish flesh reducing their quality and market price, resulting in reduced incomes to fishermen.”
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