Licence to Drill

30 November 2008 (Last Updated November 30th, 2008 18:30)

There is intense speculation surrounding the mammoth potential of the Arctic's hydrocarbon reserves and their future. This makes it easy to lose sight of the area's current developments. Alex Hawkes catches up with StatoilHydro to discuss its latest progress at the Shtokman field.

Licence to Drill

Headlines on the Arctic's hydrocarbon reserves tend to be frosty, focusing either on the growing fears surrounding the exploration of such a sensitive and extreme environment or the fierce clamour from countries including Russia, Denmark, Norway and Canada to claim the ice-ravaged region as their own.

Yet for all the ifs and buts, progress in the region is already underway.

As the world's largest undeveloped offshore gas field, Shtokman, in the centre of the Russian Barents Sea Shelf, has emerged as a gleaming example of the vast potential of the region. Discovered in 1998, the area covers 1,400m² and is estimated to have reserves of 3.7 trillion cubic metres of gas.

Following an appraisal drilling programme, a production-sharing system was signed by the Russian government in 2000 that saw the licence for gas and gas condensate exploration and production go to Sevmorneftegaz – a wholly owned subsidiary of Gazprom – with Total and StatoilHydro as project partners.

"Shtokman has emerged as a gleaming example of the vast potential of the region."

Each company brings its individual expertise, and StatoilHydro gives the project an established presence in offshore operations and technology. As the world's largest deepwater operator, the Norwegian energy company has become a notable pioneer of innovating and introducing new technologies since it formed in 2007 as a result of a merger between Statoil and Norsk Hydro.

Terms of the contract

In 2007, the company signed a frame agreement for a 24% equity interest in Shtokman Development AG (SDAG), with Gazprom (51%) and Total (25%) as the other two partners. SDAG is responsible for planning, financing and building the necessary infrastructure for the first phase of the Shtokman development, which it will own for the first 25 years of commercial production.

This includes offshore installations, pipelines to shore and the onshore processing plants for liquefied natural gas (LNG) and piped gas.

StatoilHydro Russia's president Bengt Lie Hansen identifies the precise details of the arrangement. "We are partners in SDAG and fully support the company and its plans. Together with our partners Gazprom and Total, we are working to mature the best possible solution for the development of Shtokman phase I, which will be subject to a final investment decision in late 2009 or first quarter 2010, according to SDAG. We are satisfied with the work process and we have a good and efficient working relation with our partners," he says.

"StatoilHydro has two of nine members in the board of the SDAG and commissions qualified personnel to work in this company. Our employees have several top management positions within SDAG, which creates a solid base to further organise and plan the project closely together with our partners Gazprom and Total."

Alongside the consortium, a broad range of suppliers is required, both Russian and international, which will be selected by SDAG in due course. At present though, the following companies have been recruited as front-end engineering and design (FEED) contractors: French oil and gas engineering company Doris in collaboration with the Russian company Rubin will oversee the FEED on the offshore technological platform; the UK's JP Kenny and Russian OAO Giprospetsgaz will perform FEED on the sea pipeline, while French company Technip and its subsidiary Technip CIS will provide FEED on the onshore gas technological complex, including the LNG plant.

"Extensive planning and preparations are done on a daily basis in order to reach a quality final investment decision (FID). This is reflected through the budget approved unanimously during the previous board meeting on 20 October 2008," says Lie Hansen.

A unique proposition

StatoilHydro is no stranger to the Shtokman project, having worked in the region for almost two decades, yet the level of collaboration with its Russian neighbours marks a new era for the company. In recent years it has propelled its ability to operate in greater water depth – largely through using new technologies – and its activities in Norway's Snøhvit and Ormen Lange are a strong indicator of how far the company has come.

"This is a unique opportunity for StatoilHydro to use its technological capabilities in realising the energy potential of the Barents Sea."

Snøhvit is the world's northernmost liquefied natural gas facility, and is located at the same longitude and at a similar water depth to Shtokman. Ormen Lange, which officially opened last year, operates in water depths from 800m to 1,100m and has an extensive subsea system that faces a seabed temperature as low as -1.2°C. The project also has the world's largest offshore gas pipeline, which was delivered on time and budget ten years after discovery.

"This is a unique opportunity to use our technological capabilities in realising the energy potential of the Barents Sea and the Arctic. We believe that Shtokman can be a locomotive for new developments in the Arctic region, and can further strengthen our relations with Gazprom and the Russian oil and gas industry in general," Lie Hansen says.

"StatoilHydro brings to the table its vast operational experience from large and complex offshore developments in harsh and cold environments, such as Ormen Lange and Snøhvit. These are some of the most demanding industrial projects ever carried out in Norway, and the experience accumulated from them will have high relevance for the Shtokman development. This includes subsea competence, experience from working in harsh climate and weather conditions, and experience in realisation of complex projects in the High North."

A frosty future

This experience could of course prove vital given the Shtokman field's location 640km from shore. The operational challenges of the project are numerous and include distance to shore, harsh climate and weather conditions, low reservoir pressure and complex health, safety and environment (HSE) situation.

The exact technical solutions to these logistical challenges are being tackled by SDAG, which StatoilHydro will support with its relevant techniques and expertise.

"After 40 years on the Norwegian Continental Shelf, StatoilHydro has developed some of the strictest environmental standards in the offshore oil and gas industry. Where StatoilHydro operates and participates, we always strive to apply our standards in order to minimise our environmental footprint. This is also part of the competence we bring into the Shtokman project," says Lie Hansen.

"It is a gateway to realising the future energy potential of the Arctic, which according to estimations may contain as much as 25% of the world's remaining undiscovered oil and gas reserves. The project represents another step for StatoilHydro's experience and competence in developing large-scale oil and gas projects in harsh environments. In this respect Shtokman is an unprecedented challenge, which is why we like to refer to it as 'the mother of all projects'."