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Total and Shtokman: The Worst Terms Ever Accepted in Russia

Below is a poignant and important letter to the editor of the Financial Times from Mr. Paul Domjan of the Stockholm Network in response to a recent piece by Pierre Noel praising the benefits of Total’s deal with Gazprom to develop the Shtokman natural gas field. In 2006, Robert Amsterdam participated in a Russian Energy Security panel hosted by the Stockholm Network and the Economist, chaired by Edward Lucas. Recordings of the event can be found here. FT:

Shtokman: beginning of the end for world’s oil majors? From Mr Paul Domjan. Sir, Pierre Noel is correct to say that the Total-Gazprom deal on the Shtokman gas field represents the beginning of a new era for independent oil companies (“How oil majors can thrive in an age of state monopolies”, August 10), but is imprecise about the consequences for their current business models. Undeniably, Gazprom needed foreign technical expertise to exploit the deep-water Arctic Shtokman field, but as the sole owner of the asset it was able to negotiate extremely advantageous terms with its many independent suitors. It is therefore the details, not the fact, of Total’s deal with Gazprom that merit examination. These terms are perhaps the worst a foreign oil company has ever accepted in Russia. Gazprom will retain both full ownership of the gas field and the production licence, and gain access to Total’s liquefied natural gas expertise – an emerging global market Gazprom is desperate to compete in. Total, by contrast, own only 25 per cent of the special purpose vehicle (Gazprom retain 75 per cent) set up to manage the extraction operation. Such terms, which may not allow Total to book the reserves – a key market indicator of long-term economic health – effectively relegate Total to the role of oil service provider, competing with companies such as Halliburton and Schlumberger. If, as Mr Noel suggests, this is to be the limit of independent oil companies’ access to one of the world’s last semi-open energy markets, the Total deal represents either the beginning of the end for the world’s oil majors as we know them, or a new beginning for those international oil companies that can reinvent themselves to survive in a world in which governments are back in the driving seat. Paul Domjan, Energy Fellow, The Stockholm Network, London N1 8QH, UK