{"id":232,"date":"2006-11-15T11:03:26","date_gmt":"2006-11-15T07:03:26","guid":{"rendered":"https:\/\/www.desertsun.co.uk\/blog\/?p=232"},"modified":"2013-12-04T06:21:43","modified_gmt":"2013-12-04T05:21:43","slug":"gazproms-folly","status":"publish","type":"post","link":"http:\/\/www.desertsun.co.uk\/blog\/232\/","title":{"rendered":"Gazprom’s Folly"},"content":{"rendered":"

I am embarrassingly late onto this story, and I blame a lack of internet connection followed by a lack of subscription to Upstream<\/em> magazine in my new company.\u00a0 Last month, Gazprom announced that it would not<\/a> be looking for foreign partners to develop the enormous Shtokman gas field in the Barents Sea:<\/p>\n

Russia Today television broke the news, quoting Gazprom boss Alexei Miller as saying that Gazprom had been unable to find suitable international partners for the liquefied natural gas project.<\/p>\n

A Gazprom spokesman later confirmed the report.<\/p>\n

…<\/p>\n

Last year, Gazprom said that it shortlisted US supermajors Chevron and ConocoPhillips, Norway’s Norsk Hydro and Statoil and France’s Total to join it in the development.<\/p>\n

Despite the companies presenting technical and business proposals on the the development of the field months ago, Gazprom has never selected two or three of them as its final partners for Shtokman.<\/p><\/blockquote>\n

This is not surprising.\u00a0 The Russian government and many Russians feel that they are getting the raw end of the deal on its existing projects which feature a foreign partner, and believe that\u00a0their massive gas reserves coupled with\u00a0heavy demand from Europe, Asia, and the US and a high oil price puts them firmly in the driving seat.\u00a0 And in all honesty, as with the Arabs and the oil, they are indeed.\u00a0 They have the resources which the wealthy Europeans, Asians, and Americans desperately need.\u00a0 I am sure that this decision\u00a0to exclude foreign partners\u00a0is a result of this renewed confidence and will be extremely popular with the domestic audience.<\/p>\n

What is not so clear is that Gazprom or any other Russian company will have the faintest idea how to develop and operate a gas field of the size and complexity of Shtokman.\u00a0 When left to their own devices, national oil companies\u00a0tend to make an utter pig’s ear of running an oilfield, concentrating only on production with scant regard to efficiency, safety, the environment, or the long-term health of the reservoir.\u00a0 Most of the older Russian oilfields are\u00a0producing poor quality crude\u00a0thanks to\u00a0Soviet policies of pumping in water to increase immediate production at the expense of future quality.\u00a0 And I have worked in one national oil company which was once refused permission from the government to shut down a leaking export line with the result that it caught fire, spread back to the nearby facility which in turn caught fire and was completely destroyed, killing a few folk in the process.<\/p>\n

Gazprom are not a national oil company as such but they are state controlled, which means political interference.\u00a0 The Shtokman gas project will be immensely technologically challenging due to the climate and offshore location.\u00a0 They will almost certainly need foreign expertise in the engineering and construction phase and as this article<\/a> shows, the Russians realise this:<\/p>\n

Russia has not ruled out inviting foreign companies to work on its giant Shtokman gas project, President Vladimir Putin said today.<\/p>\n

“Russia has decided to develop this field independently. We will be the sole subsoil user and owner of the field, but we do not rule out inviting foreign companies for joint work on development or doing part of the gas liquefaction process and marketing it in third countries,” Putin told Reuters after a meeting with German Chancellor Angela Merkel.<\/p><\/blockquote>\n

That is a very good idea, because if you do rule out using foreign companies to provide gas liquefaction or offshore technologies you’re going to be reinventing the wheel to the point that you’ll be\u00a0at least 30 years behind current technology from the outset.\u00a0 Indeed, it is certain that most of the engineering, construction, and commissioning will be carried out by foreign firms, perhaps in partnership with local outfits.\u00a0 Quite how these foreign companies will get along on a project being managed by Gazprom, who have no large scale project management experience whatsoever, is open to question.\u00a0 If Gazprom can keep the project free of political interference and corruption, and resist the urge to stand on the contractors’ necks just to show ’em who is boss, the project will go just fine.\u00a0 That’s a big if, and if ever there will be a test of whether Gazprom is ready to be called a world class energy giant, this will be it.<\/p>\n

What is equally worrying is how Gazprom will operate and maintain a large and complicated LNG facility.\u00a0 It is easy to say that they don’t need foreign expertise as they can simply buy the technology and manage it themselves, but not so easy to do in practice.\u00a0 The Middle East is a fine example of that, whereby companies bought hi-tech oil and gas facilities and watched them deteriorate as they were either unwilling or unable to put in the time, money, and effort to keep the things working safely and efficiently.\u00a0 Not for no historical reason\u00a0does my previous company make its money\u00a0helping companies\u00a0to rectify 25 years of neglect.\u00a0 Operation and maintenance is equally as complicated and important as building the thing in the first place.\u00a0\u00a0You wouldn’t buy a Ferrari and run it with the same oil and brake pads for 10 years, would you?\u00a0 Yet some\u00a0governments think they can buy LNG technology and do all the servicing themselves,\u00a0if they bother at all.\u00a0 Next time a Russian tells you foreign oil companies have no business operating Russian fields, poke him in the chest and ask him how often the seats in the emergency shutdown valves should be replaced.\u00a0 He’ll not have a clue, but more worryingly nor will the company he thinks should be operating the field.<\/p>\n

What the likes of Gazprom lack is a corporate memory of running things to international standards.\u00a0 Companies like Exxon, BP, and Shell have banks upon banks of historical data recording how often components fail, how often they should be maintained or replaced, and what material to use.\u00a0 This has been painstakingly gathered over decades and turned into detailed procedures and specifications which determine exactly how a facility is run.\u00a0 These have then been revised accordingly following accidents and other failures where the current procedure or specification\u00a0has been found wanting.\u00a0 Over time, and only over time, does a company develop a culture whereby the entire workforce from senior managers to lowly technicians follow the procedures and practices which have been proven to work.\u00a0 It is not possible to simply purchase a lump of technology and the handbook containing the procedures and run a facility.\u00a0 This has been tried, and it just doesn’t work.<\/p>\n

Some governments have woken up to this, but being reluctant to hand over full control of their oilfields to foreigners have attempted a halfway house situation whereby they bring in a recognised company to install and implement their management systems without actually being in charge.\u00a0 One of the subsidiaries of the Abu Dhabi National Oil Company recently brought Exxon-Mobil on board as a 28% stakeholder in an effort to implement its maintenance management systems across its crumbling assets.\u00a0 This approach is usually better than trying to go it alone, but still leaves the company vulnerable to political interference or cronyism.\u00a0 Often the success or otherwise of such a partnership depends as much on the individuals involved than the company brought in to help.<\/p>\n

So what should\u00a0the Russian government\u00a0do instead?\u00a0 Firstly, look around the world.\u00a0 It will see that the only national oil company which operates safely, efficiently, and on a par with international standards is Statoil of Norway.\u00a0 The rest range from being bloated and inefficient to startling unsafe and riddled with corruption.\u00a0 Secondly, convince itself and the Russian population that a foreign oil company operating a Russian oilfield is not tantamount to theft of national resources.\u00a0 Then it should carve up the field into licensed blocks, flog the licenses to the highest bidders, and tax the production from thereon.\u00a0 Regulation should be\u00a0enforced where it is needed, for instance on\u00a0health and\u00a0safety and environmental matters, but other than that it should stay well away from the whole shooting match.<\/p>\n

And there’s a fat chance of that.<\/p>\n","protected":false},"excerpt":{"rendered":"

I am embarrassingly late onto this story, and I blame a lack of internet connection followed by a lack of subscription to Upstream magazine in my new company.\u00a0 Last month, Gazprom announced that it would not be looking for foreign … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[7,3],"tags":[],"_links":{"self":[{"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/posts\/232"}],"collection":[{"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=232"}],"version-history":[{"count":1,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/posts\/232\/revisions"}],"predecessor-version":[{"id":1923,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/posts\/232\/revisions\/1923"}],"wp:attachment":[{"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=232"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.desertsun.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}