Cranes in the Sakhalin Port of Kholmsk. Along with Sakhalin-2, the Yamal fields are one of the great prizes in Russia's energy portfolio.
It is a great prize in Russia’s vast energy portfolio, estimated to hold over 30 trillion cubic meters of gas that could one day be the main source feeding hungry markets in Western Europe and at home.
But for decades, the Yamal peninsula and the Kara Sea that encircles it have been sitting mostly untouched, the region’s abundant energy riches the pride of Gazprom’s portfolio more in rhetoric than in action.
That will soon change, and Dutch energy companies are leading the race to get in on the game.
“Yamal is one of the most — if not the most — important development for the Russian gas sector,” said Hans Van Lamoen, Royal Dutch Shell’s project manager for Russia, and Coordinator of the Project Delta Group. “It is a strategic top priority for Russia and for Europe and therefore for the Netherlands, considering the respective interests of ‘security of demand’ and ‘security of supply.’”
To push the case of Dutch companies, Van Lamoen helped found the Project Delta Group, which brings together 16 Dutch companies, including Shell, Gasunie, Gasterra and a host of civil and marine engineering firms, among others. In December 2008, Project Delta signed protocols with Gazprom outlining potential cooperation to develop Yamal and the surrounding Kara Sea.
But it all began about a year earlier, in November 2007 — several months after Shell and its Japanese partners finalized a deal to sell a majority stake in Sakhalin-2, the world’s largest integrated oil and gas project, to Gazprom after months of pressure by state environmental authorities.
The Project Delta proposal was first submitted during a visit to Moscow by Prime Minister Jan Peter Balkenende and a high-level business delegation, and it received subsequent political blessing from then-President Vladimir Putin, whose personal interest in state control over energy resources was a hallmark of his presidency.
“Definitely, it is believed that the protocol was signed as a gesture of goodwill after the Sakhalin-2 restructuring,” said Chris Weafer, chief strategist at UralSib, the Russian investment bank.
If, on the one hand, it was indeed a measure of goodwill from Moscow, then it was also just as much a sign of the lessons learned by Shell — and all foreign energy companies — in the wake of the murky struggle over Sakhalin-2.
“We are clearly dealing with strategic supplies. From a Russian point of view, the interest of the state is very clear,” said Van Lamoen. “If you look at Russia, playing its cards at the energy table … many of the steps of international cooperation tend to start at the state level.”
Thus the political blessing from then-president Putin — which, while necessary, may not be sufficient to ensure the involvement of the Netherlands’ main energy firms.
“It’s early days,” said Van Lamoen, noting that Yamal developments have just begun and will continue for many decades to come.
Gazprom has never signaled that it intends to take on a foreign partner to develop Yamal, though joint ventures with minority stakes awarded to international energy firms have become standard practice. Above all, foreign technological expertise is key.
“The Ministry of Gas in the past, and now Gazprom, have been very capable in developing the Russian gas sector over the past decades without direct foreign participation,” said Van Lamoen. “Yamal and the Kara Sea — it’s a different area. Here is a complex interface of land and water with fields situated onshore and offshore. Dutch companies are leaders in dealing with infrastructure developments at the interfaces of land and water and can therefore contribute extensive expertise and experience in Yamal, both as consortium partners and as project contractors.”
The Dutch have another leg up in the race to get in on Yamal’s development. Also in November 2007, Gasunie acquired a 9 percent stake in the Nord Stream pipeline, which will eventually send 55 billion cubic meters of gas directly to Europe through a Baltic Sea passage running from the Russian port of Vyborg to Greifswald in Germany.
Both in Europe and in Moscow, Nord Stream is touted as vital to both sides’ energy security, bypassing as it does pesky states like Ukraine, where politicized disputes over payments have prompted Gazprom to shut the taps, leading most recently to a severe energy crisis across Central and Eastern Europe in January of this year.
Yet what use is a pipeline if there is no gas to fill it?
“This is what energy security for Europe is all about. It’s not pipelines. It’s new projects, particularly Yamal,” said Weafer. “The EU is pushing to have its companies take part as a means of ensuring these projects will move forward.”
Yamal’s first project is just now due to get off the ground, decades after its discovery and seven years after Gazprom identified the region's gas fields as a strategic priority. Construction on infrastructure and pipelines has begun at Bovanenko, a large Yamal gas field that Gazprom has said could come online in 2011 and eventually produce a peak of 140bcm. Even before the global financial crisis hit, many analysts in Moscow called the 2011 target ambitious.
Cost is another question. Shell has estimated Yamal’s total development at more than $200 billion. Gazprom declined to comment, with a spokesman saying, “Negotiations between Gazprom and a group of Dutch companies regarding the Delta Project are still going on, and we cannot issue the details of it.”
“It’s a massive cost, but it needs to be done,” said Weafer. “The longer you leave it, the greater the risk of shortage.”
“In the current challenging economic climate, we can expect Gazprom to look critically at their business plans and possibly at some point delay or cut certain development plans and investments. But Yamal, with Bovanenko up front, is a top priority for which the development activities and investments are expected to proceed as planned,” said Van Lamoen.
“This is what energy security for Europe is all about. It’s new projects, particularly Yamal.”
For the past few decades, Gazprom has relied on fields in Western Siberia to produce the gas that keeps both Russian and European households warm and their industries running. As those fields reach their point of natural decline, the risk that Gazprom, for the first time in its history, will be unable to fulfill long-term supply contracts is becoming real.
“There is a greater sense of urgency,” said Weafer.
And that is where the Dutch hope they can jump in. Project Delta gives the companies an organized lobbying force, pushing for access to Russia’s new energy frontier.
Two members of the consortium are already working at the site, helping to build the infrastructure needed for production and transport to begin. One of those is Boskalis International, a leading marine engineering firm, which first began working in the region three years ago, before Project Delta was founded.
“This area is really tough to work with,” said Arie Smits, the firm’s area manager for Yamal. “Dutch companies can really contribute to this project.”
“Right now, there’s nothing there.”