New dawn for Shtokman’s polar night
  from: Offshore Engineer
  by: Darius Snieckus
  Monday, July 07, 2008

Russia’s Shtokman field has grown to near mythic status in the offshore pantheon in the years since its discovery in 1988 in the Barents Sea. Home to gas reserves of more than 3.8 trillion m³ and locked in ice and polar night much of the year 600km northeast of Murmansk, the multi-stage megadevelopment represents the sternest of tests – and one that is seen by phase one developer the Shtokman Development company as a ‘locomotive’ in opening up the Arctic’s vast hydrocarbon reserves to commercial E&P. Darius Snieckus reports.

After a series of fault starts that some industry observers date back almost 20 years, a final investment decision on the $15 million phase one development of the gargantuan Shtokman gas field in the Russian central Barents Sea now looks very likely to be taken by the end of 2009. Joint development company Shtokman Development ag, formed by Gazprom-subsidiary Sevmorneftegaz, Total and StatoilHydro to manage ‘engineering, development, construction, financing and exploitation’ of the lead-off phase of the stepwise project, has been incorporated.

Feeds for a subsea production system and a floating production unit, a 600km long offshore trunkline, and an onshore LNG receiving and export facility are moving ahead at Doris Engineering/ Rubin, JP Kenny/Giprospetsgaz, and Technip, respectively.

Should the green light be given to the project next year, Shtokman phase one is expected to start flowing into the West’s gas markets in 2013, with production hitting a plateau 70 million m³/d in 2020.

Talking about the Shtokman development, foreseen to stretch over three – possibly four – phases to tap estimated reserves of 3.8tcm of gas and 31 million tonnes of condensate, phase one project director and Shtokman Development deputy CEO Hervé Madeo speaks of ‘needs’: a ‘need for Russia’ on the supply side, and a ‘need for European gas and US LNG markets’ on the demand side. Indeed, with worldwide energy requirements growing apace, the field’s in-place reserves would meet 15 months’ global gas consumption, and the development, along with the likes of Snøhvit in the Norwegian Barents Sea and the Sakhalin 1 and 2 fields in the Sea of Okhotsk in Russia’s far east, could be a beacon project for the oil and gas industry in the Arctic, where the US Geological Survey calculates 25% of the world’s remaining hydrocarbon resource lies.

‘Shtokman is the second largest gas field in the world today but more important than its significance to Russia, to European gas markets and to US LNG markets is that Shtokman will pave the way toward developing the oil and gas reserves of the Arctic area, not least in the Barents Sea,’ says Madeo, who was presenting at the recent MCE Deepwater conference in Paris.

Discovered in water depths of 320-340m in 1988, the field, which is spread over 1728km2, is fed by four producing reservoirs – J0, J1, J2, J3 – that are described by Madeo as showing ‘good petrophysical characteristics’ with low condensate gas ratio and CO2 content and no H2S to speak of. ‘The reservoir content is one instance where Shtokman does not represent a really big challenge,’ he states. Seven wells have been drilled so far to explore and delineate Shtokman, the last by Odfjell’s Deepsea Delta semisubmersible in 2006.

Offshore, as plans stand, Shtokman phase one will encompass 20 wells arranged over three subsea templates, with associated flow lines and risers carrying wellfluids up to an ice-resistant, potentially disconnectable floating processing platform – ‘an FPU, Spar or similar’ outfitted with gas and condensate dehydration and compression capability, utilities, and living quarters. Production feedstock would be transported to shore via a two-phase 42in subsea line.

Onshore, in Teriberka, 110km from Murmansk, the project entails construction of a complex made up of facilities for receiving and gas treatment, a 7.5 million t/yr LNG plant, storage for LNG gas and condensate, export compression facilities, a harbour, and ‘all other facilities required to operate the offshore and onshore installations’ as Shtokman grows phase-by-phase. From here gas will be either liquefied for transport on LNG tankers or, in parallel, compressed and piped into the Nord Stream trunkline for delivery to a receiving terminal at Greisfald, Germany, 1400km away. The $15 billion budgeted for the first project phase will be ‘divided half for offshore and half for onshore’.

Of the nearly 24bcm that Shtokman phase one will be producing yearly at plateau, 12.2bcm will – starting in 2014 – be liquefied, 5% will flow into the local market, and the remainder – likely around 11bcm – will be exported across the Baltic Sea by way of Nord Stream.

After Gazprom reversed its earlier decision to develop Shtokman independent of any international oil company partnership, last year looks like proving pivotal to the ultimate success of the project. Following the signing of framework agreements in July and October 2007 by Gazprom with Total and StatoilHydro, the three in February this year established Shtokman Development. The special purpose company based in Zug, Switzerland will own the phase one infrastructure for 25 years after start-up, with contractual responsibility to Sevmorneftegaz, the field’s licensee, for ‘all the financial, geological and technical risks’ associated with the project, except for the LNG shipping and the land pipeline to Vyborg, Russia, site of the northern terminal of the planned Nord Stream line.

‘Shtokman Development has been registered now and will provide the framework for a single integrated project team drawn from Gazprom, Total and StatoilHydro,’ underlines Madeo. ‘The aim is a synergy of Russian and European skills and technologies through the sharing of knowledge and resource optimisation.’

‘Extraordinary’ challenges

Collective knowledge as well as collective will will both be needed to produce Shtokman given the ‘extraordinary’ technical, planning and cost, and organisational challenges implicit in a environmentally-sensitive frontier development project such as Shtokman Devlopment is attempting to progress. ‘We are in the Arctic with its extreme weather conditions,’ Madeo states. ‘These impact on the design. The operating conditions – the six months of ice, the polar night – also means we have a very limited construction window, only a few months of the year. There is also going to be a huge impact on the city of Murmansk, as we aim to integrate the project into the local context. And then there is the essential matter of preserving the area’s sensitive ecosystem during development and production operations.’ In October 2006, Russia’s Federal Nature Management Supervision Service, Rosprirodnadzor, gave its approval of Shtokman phase one’s environmental impact assessment.

The list of technical challenges linked to the offshore facilities is topped by the need for topsides with a design capacity for 400,000boe/d – first operating weight estimates are in the range of 45,000t. Then there is the ice. Though Shtokman does not suffer from the ice and permafrost issues faced by many Arctic developments, ice-resistance and disconnectablity are at the forefront of concept design for the floating production unit best suited to the field and its environs. Madeo notes:. ‘There are many HSE and operational aspects related to extreme conditions at Shtokman.We have yet to take a final decision on the concept.’ Preliminary design engineering and evaluation are under way at Doris/Rubin.

Next comes transport of Shtokman gas and condensate to shore. From high flowrate riser arrangements, through pressure and flow assurance challenges linked to the development’s long-distance, large diameter trunkline, to pipelay routing over difficult seabed topography and a ‘very steep’ shore approach, the export pipeline portion of the project ‘is not easy’, remarks Madeo. Even the onshore side of the development faces climatic issues – winterisation, construction constraints, and other ‘specific site conditions’, he states.

‘There is also the logistical aspect of a project 600km offshore in polar night for half of the year, and this is certainly a technical challenge too,’ Madeo continues. ‘There definitely looks like there is a need for an intermediate platform to ensure that the helicopters travelling out to the production platform have a place to land if they cannot complete the 1200km journey out and back for any reason.’ Management of the 7000 workers anticipated during the peak of construction activities is no less a part of the logistics mix for Shtokman phase one.

As with any project of this ‘world class’ scope – and there are few if any, of course, to which Shtokman can be compared – budgetary challenges are herculean. ‘We must keep this budget under control while maintaining the highest level of competitiveness. On Shtokman as perhaps never before there is a need for innovative and robust solutions in planning and cost optimisation,’ he adds. ‘And we must do this while balancing the interests of three different but we feel complementary companies and national cultures – Russian, French and Norwegian – on one project asset.’

‘The Shtokman project has some considerable assets, however, to balance its challenges,’ underscores Madeo. ‘Gazprom’s leadership is definitely one of our assets because they need this gas to be brought to market. The project partners, Total and StatoilHydro, both have strong expertise to bring to the project, as does that brought to bear by Gazprom and the various Russian institutes involved. And Shtokman also benefits from both being a Russian project with a Russian industrial network, local content and regional expertise and experience, as well as being a frontier project that international contractors are eager to join.’

Despite Shtokman being a megadevelopment of the first order, there are numerous factors that give buoyancy to its ‘viability assessment’, including ‘favourable feedstock composition’ that minimises gas and separation costs, low regional temperatures which help to cut gas liquefaction costs, and the possibility of providing parallel pipeline and LNG shipments to Europe and the US ‘as the market situation requires’.

Infrastructure for that market took more concrete shape in May this year, with Gazprom Marketing & Trading signing a letter of intent with a consortium made up of Gaz Metro, Enbridge, and Gaz de France that will see the Russian company become an equity partner in Canada’s $840 million Rabaska LNG regasification project, along with a contract for 100% of the import terminal’s capacity. Gazprom plans to import Shtokman LNG shipments starting in 2014 using a terminal built on the St Lawrence River at Lévis, Quebec, which will be able to receive, store, and regasify liquefied gas with a nominal send-out capacity of 14 million m3/d. Rabaska has already been granted the necessary provincial and federal government approvals to proceed with construction of the terminal in Lévis.

Back in the Swiss city of Zug – more than a decade after many IOCs starting planning for Shtokman and setting up consortia in the hopes of securing this glittering gas prize – there are other reasons to take cheer that the Russian Barents Sea megadevelopment will come good this time. Gazprom, as the world’s top-ranking gas producer and supplier of more than a quarter of European energy needs, has, as analysts have observed, shown keen judgement in choosing a French and Norwegian oil company to partner with on Shtokman. For France is the largest importer of oil and gas among European Union countries – and one of the most influential political leaders of the EU at a time when Russian investment in European energy infrastructure is being limited by Brussels – and StatoilHydro, though not from an EU member state, is the third largest exporter of hydrocarbons globally and, in its Barents Sea Snøhvit development, has Europe’s only operational LNG plant today. All to say, in selecting its partners for Shtokman Gazprom has balanced the scales between importers and exporters, as well as factoring in key political and technological considerations.

By the time the envisioned threeplatform greater Shtokman complex is onstream, Gazprom pictures seven eight-well subsea production centres flowing gas through a trio of floating processing platforms and on 600km to Teriberka where four 7.5 million t/yr LNG plants will process, pipe and ship production to Europe and the US. Such is the perceived long-term horizon for the megadevelopment, Sevmorneftegaz director general Yury Komarov was reported as saying, as the Shtokman Development company was launched earlier this year, that if the first stage goes to plan, a fourth one ‘with a planned production volume of 95bcm/yr’ may be added to the development in the future as part of a megaproject that could cost in the region of $50 billion when complete.

Partnership is underpinning phase one of Shtokman. But just what involvement Western oil companies and contractors will have on the coming phases of Shtokman’s development remains to be seen. OE

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