Russian natural gas giant OAO Gazprom said will develop the huge Shtokman gas field on its own without foreign partners, in another setback for western energy companies looking to gain access to Russia's vast hydrocarbon riches. The state-run monopoly, a leading instrument in President Vladimir Putin's drive to assert state control of Russia's immense oil and gas reserves, also said that piped supplies of gas from the field to Europe would take precedence over sending liquefied gas to the United States.

Gazprom Chairman Alexey Miller called Europe the "No. 1" priority for the company and said that foreign firms — which had been expected to control 49% of the project — would no longer be given a share in a consortium developing the Shtokman field. "This field will be developed without offering foreign companies the right to its reserves. Gazprom will be the 100% owner," Miller said in an interview with state-run channel Russia Today. The Shtokman project was to have been one of the world's biggest gas field tenders in decades. With reserves of 131 Tcf of gas, the field could supply the U.S. market for 5 years.

The announcement is a major disappointment for western energy corporations which had been looking to secure minority stakes in the project, as well as assuring demand-stretched energy markets. The short list to partner Russia's OAO Gazprom comprised US-based Chevron Corp. and ConocoPhillips, as well as Norway's Statoil ASA and Norsk Hydro ASA, and France's Total SA. The project is anticipated to cost between US $10 billion and $20 billion (€7.9-15.8 billion) and come online in 2010. Observers also suggested that the decision to prioritize the European market was a slap in the face to Washington after Russia's failure to reach an agreement with the United States on its bid to join the World Trade Organization against a backdrop of deteriorating relations.

"Its a surprise, its a disappointment. To have a complex bidding process with major international companies and to get to the point where five are in the final list, only to be told that all of this is irrelevant is not consistent with normal international practice," said Andrew Sommers, head of the American Chamber of Commerce in Russia. "It could be symptomatic of a changing political and economic perspectives in Russia about how to get things done," he said. Gazprom's move came on the heels of official pressure against Royal Dutch Shell PLC, whose giant Sakhalin-2 liquefied natural gas project has seen a key environmental permit withdrawn in what analysts say is a form of pressure by the Russian gas giant to secure better terms for its entry into the project.

The Anglo-Dutch company may be forced to stop work on the huge project in the Russian Far East, a development that has sent shudders through the international investment community and reflects a Kremlin willingness to defy foreign reaction. Originally Gazprom was to have had a controlling 51% stake in the project while western partners would hold the remaining 49%. In a company statement, Miller said that Gazprom would operate the field on its own and would bring in foreign companies only as contractors. "Foreign companies could not offer us assets that corresponded in size and quality with the reserves of the Shtokman field," Miller said. Miller said that gas from the field would be used initially to fill a planned pipeline under the Baltic Sea from Russia to Germany.

Previously Gazprom has said that the project's focus would be on sending shipments of liquefied natural gas to the US market. The Kremlin had indirectly linked the involvement of US companies in Shtokman to Russia's negotiations to join the WTO. The United States and Russia, experiencing a chill in relations, have been unable to come to agreement on Russia's accession to the powerful global trade body. Christopher Granville, a Moscow-based strategist and editor of the Trusted Sources analytical service, said the decision to prioritize Europe could be explained partly "in geopolitical terms — by Putin's recent visit to Europe as well as the sharp deterioration in relations with the US over WTO."

Granville noted that the tensions had also been highlighted by the collapse in relations with its tiny ex-Soviet neighbor, Georgia, which is seeking NATO membership and has warm relations with Washington. Russia has imposed sweeping sanctions against Tbilisi after a spy row last week. The final decision for developing the 130.7 Tcf (3.7 Tcm)field was originally due to be made in April but had been delayed repeatedly amid allegations that the choice of which western companies to admit as minority partners to Russia's major fields was becoming politicized.

Ties between Russia and the United States, which have been strained by American concerns that Putin backtracking on democracy and human rights, have been further affected by the failure for U.S. hopes for a major increase in energy cooperation with Russia to be realized. Oil and gas analyst Kakha Kiknevalidze of Brunswick UBS investment bank said that the company would be going out on a limb were it to pursue the complex project alone. "Gazprom has no experience of offshore projects, it has no experience of LNG. I think it will be very challenging," he said. "Normally on a project like this you want to share risk exposure." Source: AP/International Herald Tribune