Why Total pulls out of gas project in Russia?

Total said yesterday it had pulled out of the Shtokman natural gas project in the Barents Sea, with development of one of the world’s largest untouched gas fields apparently falling victim to Western sanctions in Russia.
“Total has passed to Gazprom its 25% share in Shtokman Development AG and expressed its interest to further cooperate on the project should it enter an active phase,” the French energy company said, confirming a report in the Russian business daily Vedomosti.
The project had been frozen for two years waiting for new technology to make it profitable, but Vedomosti said development solutions Total had recently proposed were prevented from moving forward by sanctions.
The US and European Union slapped sanctions on Russia last year over its role in the Ukraine crisis, targeting in particular the oil and gas sector where Russia needs Western technology to profitably access deposits in hostile climates.
At 3.8tn cubic metres of gas, the Shtokman field is one of the world’s largest untouched gas fields.
But buried underneath the Barents Sea above the Arctic Circle, developing it would require technology breakthroughs and huge investment.
Norway’s Statoil dropped out of the project in 2013 and then Gazprom suspended it until new technology could make it viable.
Total wrote off last year $350mn (€312mn) for its stake in the Shtokman project, but continued to work on technological solutions and did not formally renounce the partnership with Gazprom.
Vedomosti said Total executives told Russian news agencies last year that they had proposed new technologies to Gazprom and that work on the project was continuing.
But then Western sanctions were imposed, and Vedomosti said Total had received permission from the French government to work on only three projects in Russia: the Yamal, Kharyaga and Termokarstovoye projects.
The Russian newspaper said the transfer of the Shtokman stake was agreed last week at Russia’s annual economic forum in Saint Petersburg, where Gazprom chief Alexei Miller met with Total’s Patrick Pouyanne.
It said a Gazprom spokesman had confided that Miller promised Pouyanne during the meeting that Total would be the first company approached to join the Shtokman project if Gazprom decided to pursue its development.
Total has in recent years launched a drive to raise its output, in particular through operations in Russia, which should become its top production source by 2020.