As a world leader in the production of marketable gas, the Russian company "Gazprom" is experiencing a sharp drop in gas production. Moreover, under the threat posed development of the largest deposits – Shtokman, Kovykta and Bovanenkovskoye. According to experts, all of this together can affect the weakening external economic and foreign policy positions of Russia.

According to official figures published by the Ministry of Energy, gas production in Russia in 2009 decreased by 12.4% – from 645 to 582 billion cubic meters. As a result, Russia has already ceded the title of a long-term world leader of the gas production to the United States, where production volumes have exceeded 700 billion cubic meters.

The main reason that led to a reduction in natural gas production in Russia, first and foremost, is the global economic crisis, which reduced the consumption of Russian gas on a key export market – the EU countries. In addition, European countries decided to reduce imports of Russian gas because of high prices for it (in conjunction with reference to oil prices with a time lag of 6-8 months), and because of threats to the stability of supply (in connection with transit through Ukraine). Noticeable effect also provides a solution in the EU to increase the share of liquefied natural gas (LNG) in the total consumption of energy resources. Concurrent increase in LNG production in Qatar led to such situation on European market, that the price for Qatari gas became lower than Russian pipeline gas.

At the same time, the most serious challenge for Russia, experts say "deadlock" situation of Gazprom concerning Shtokman field. This is the largest gas field which reserves are estimated at 3.8 trillion cubic meters, was planned to develop in the coming years with French “Total” and Norwegian “Statoil”.

Located in the Barents Sea field, as assumed in Gazprom, will produce 23.6 billion cubic meters of gas per year in the first phase and about 70-90 billion at the outlet of production to full capacity. Produced gas to be exported in two ways: through the pipeline “Nord Stream” on the EU market and in the form of LNG to the United States.

However, at the beginning of this year Board of Directors of Shtokman Development (operator for development of the Shtokman field) questioned the profitability of the project whose cost has risen from $ 15 to $ 20 billion, and decided to defer its implementation for several years. It is noteworthy that Gazprom does not have the necessary investment and technology for the sole development of giant Shtokman field.

The reason for unprofitable development of this field has become a revolution in U.S. oil and gas industry. Contrary to the expectations of Russian experts, the United States in recent years increased their production of shale gas to a record volume. Thus, according to “Ziff Energy Group” estimates in 2009 U.S. has been extracted 51.7 billion cubic meters of gas from shale. According to some projections, by 2015 this figure could rise to 180 billion cubic meters.

The sharp increase in the production of shale gas due to the fact that the U.S. natural gas production is demonopolised and anyone can drill wells in shales, which led to the emergence of many companies interested in development of U.S. gas sector. Moreover, the popularity of this clean and cheap fuel is growing – due to the high cost of oil more and more consumers, particularly industrial, is gradually switching to natural gas as their primary source of energy that boosts mining sector in the U.S. to increase production.

Saturation of the U.S. shale gas has turned this largest market in gas consumption in almost self-sufficient. This led to a significant reduction in the supply of import LNG to the U.S. and redirecting them to other markets. Ultimately, the production of shale gas in the United States has become a catalyst to reduce natural gas prices in the EU.

Thus, the development of the Shtokman field in the light of the above-mentioned export orientation, has become uneconomical. In order to consider alternative markets and transportation infrastructure for the delivery of the Shtokman gas, for example, to the Asia-Pacific countries, it takes time. Therefore, French and Norwegian partners of Gazprom decided to postpone the development of this field.

Problems with delayed commissioning of the Shtokman threaten two main goals of Gazprom:

1. Stockman had to give 11 billion cubic meters of gas to fill a gas pipeline "Nord Stream", which should make the end of 2012.

2. Gazprom intends to increase its share in the U.S. market 20 times – from 0.5 to 10%. Such ambitious plans have been associated with the development of the Shtokman field, where plans to build a LNG plant with output of 7.5 billion cubic meters of gas a year.

Summarizing, we can draw the following conclusions.

In the current situation in jeopardy the unique position of Gazprom as in foreign so is in internal policy of Russia. Now for Gazprom is vitally important to convince the partners of the need to develop Shtokman field in the near term. That is why President Dmitry Medvedev made an official statement that the LNG from Shtokman will be able to compete with shale gas in the U.S.

Regarding the position of Gazprom in Europe, many experts believe that the gas giant will likely go the way of greater liberalization of its policies and become more flexible in discussing contracts with the Europeans, especially in their price component, since Qatar actively expanding production capacity and export of LNG, is gradually strengthening its position in the EU gas market.

However, taking into consideration the lack of transportation and storage infrastructure for LNG in European countries, as well as large financial and time costs of its creation, it can be assumed that the share of Russian pipeline gas will remain high in the total gas consumption in Europe. But it will be far from the volume anticipated by Russia.

Russia, obviously, will retain its status as the largest gas exporter in the world, and in the longer term perhaps even be able to boost shipments to Europe, but the former super-profits "Gazprom" will not see in the foreseeable future, and its share of European consumption will drop significantly compared to middle of this decade.

Ashraf Khodjaev, Ph.D.
Expert of the Center for Political Studies