Swedish University of Agricultural Sciences Faculty of Natural Resources and Agricultural Sciences Department of Economics Case Study: The Shtokman Project. The Socio-Economic Capacity of the Murmansk Region in the Framework of the Development of the Shtokman Project. Daria Kovalevskaya Olga Mikhaylova Master’s thesis · 30 hec · Advanced level Environmental Economics and Management – Master’s Programme Degree thesis No 689 · ISSN 1401-4084 Uppsala 2011 i Case Study: The Shtokman Project. The Socio-Economic Capacity of the Murmansk Region in the Framework of the Development of the Shtokman Project. Daria Kovalevskaya Olga Mikhaylova Supervisor: Hans Andersson, Swedish University of Agricultural Sciences, Department of Economics Assistant supervisor: Aileen Espiritu, Barents Institute, Kirkenes, Norway Examiner: Karin Hakelius, Swedish University of Agricultural Sciences, Department of Economics Credits: 30 hec Level: Advanced E Course title: Independent Project in Business Administration Course code: EX0536 Programme/Education: Environmental Economics and Management, Master’s Programme Place of publication: Uppsala Year of publication: 2011 Cover picture: Gazprom, 2011e Name of Series: Degree project No: 689 ISSN 1401-4084 Online publication: http://stud.epsilon.slu.se Key words: Shtokman, Murmansk Region, Value Chain, Gas Cluster Swedish University of Agricultural Sciences Faculty of Natural Resources and Agricultural Sciences Department of Economics ii Acknowledgements We would like to thank Aileen Espiritu, the director of the Barents Institute, for providing us with the great opportunity to conduct this research in Kirkenes, Norway. We pass our acknowledgements to the best supervisor professor Hans Andersson for the help and valuable advice. Furthermore, we are grateful for the support and patience of our best friends Ardjan Gazheli, Rudy Kapsenberg and William Redekop. Special thanks to our family in Russia, the Netherlands and Germany. iii Abstract This research is conducted on one of the world’s largest deposits - Shtokman gas and condensate field located in the Barents Sea. The development of the field is operated by the Special Purpose Company Shtokman Development AG - the international consortium of Total, Statoil and Gazprom. This research is aimed to analyze the value chain of the Shtokman project and to study the socio-economic capacity of the Murmansk region in order to examine the perspective fields of work for local companies, as well as the socio-economic potential of the region related to the gas industry that can be applied to the realization of the Shtokman project. The research is based on qualitative and quantitative data collection that involves the results of 24 semi structured interviews conducted in the Murmansk region, including the interviews with representatives of the Shtokman Development AG and the industrial committee of the Murmansk region government. The results of this study illustrate the importance of the value chain of the Shtokman project and the economic potential of the Murmansk region due to the gas cluster formation in the framework of the Shtokman project development. Additionally, the study includes the comparison with some similar offshore projects such as Snøhvit and Sakhalin-2. iv Sammanfattning Forskningen bedrivs på en av världens största fält - Shtokman gas och kondensat fält som ligger i Barents hav. Utvecklingen av fältet drivs av ett separat företag Shtokman Development AG - ett internationellt konsortium bestående av Total, Statoil och Gazprom. Forskningen syftar till att analysera värdekedjan i Shtokman-projektet och i syfte att studera den socio-ekonomiska kapaciteten i Murmansk regionen. Dessutom analyseras utifrån ett företagsekonomiskt perspektiv potentiella arbetsområden för lokala företag samt den socio- ekonomiska potentialen i regionen i samband med att gasindustrin utvecklas vid genomförandet av Shtokman-projektet. Forskningen är baserad på kvalitativ och kvantitativ datainsamling som omfattar resultatet av 24 semistrukturerade intervjuer i Murmansk regionen som inbegriper intervjuer med företrädare för Shtokman Development AG och den industriella kommittén i Murmanskregionens regering. Resultaten av undersökningen visar på betydelsen av värdekedjan för Shtokman-projektet och den ekonomiska potentialen i Murmansk regionen av projektet p.g.a klusterbildning inom ramen för Shtokman projektutveckling. Dessutom innehåller studien en jämförelse med liknande offshore projekt såsom Snövit och Sakhalin-2. v Abbreviations AAPG – American Association of Petroleum Geologists AMIGE – Arctic Marine Engineering Geological Expeditions CSR – corporate social responsibility EIA – environmental impact assessment GCF – gas and condensate field HSE – health and safety policy KSC – Kola Science Centre LNG – liquified natural gas MAGE – Marine Arctic Geological Expedition MCSP - Murmansk Commercial Sea Port MSTU – Murmansk State Technical University NCC – Northern Chamber of Commerce NGL – natural gas liquids NRCC – Norwegian – Russian Chamber of Commerce PSA – Production Sharing Agreement RAS – Russian Academy of Sciences R&D – research and development ShDAG – Shtokman Development AG SME – small and medium enterprises TLC – transport-logistic complex USCRF – United Shipbuilding Corporation of the Russian Federation Units cu - cubic km – kilotemets m – meters mln - million tons – tonnes tn - trillion % - percent vi Table of Contents 1 INTRODUCTION ............................................................................................................................................... 1 1.1 PROBLEM BACKGROUND ........................................................................................................................................ 2 1.2 PROBLEM ........................................................................................................................................................... 3 1.3 AIM AND DELIMITATIONS ...................................................................................................................................... 4 1.4 OUTLINE ........................................................................................................................................................... 5 2 THEORETICAL PERSPECTIVE AND LITERATURE REVIEW .............................................................. 6 2.1 STRATEGY AND STRATEGIC MANAGEMENT . ............................................................................................................... 6 2.2 VALUE CHAIN AND VALUE CHAIN MANAGEMENT . ....................................................................................................... 7 2.3 CLUSTER APPROACH ........................................................................................................................................... 10 2.4 ALTERNATIVE THEORIES ...................................................................................................................................... 13 3 METHOD ............................................................................................................................................................ 14 3.1 CHOICE OF THE PROJECT ...................................................................................................................................... 14 3.2 LITERATURE REVIEW ......................................................................................................................................... 15 3.3 THE CHOICE OF THE THEORIES ............................................................................................................................. 16 3.3.1 Value chain management ...................................................................................................................... 16 3.3.2 Cluster approach .................................................................................................................................. 16 3.4 RESEARCH DESIGN: CASE STUDY ......................................................................................................................... 16 3.5 DATA COLLECTION METHODS .............................................................................................................................. 17 3.5.1 Preliminary research in SLU ................................................................................................................. 18 3.5.2 Research in Barents Institute ................................................................................................................. 18 3.6 DATA ANALYSIS METHODS .................................................................................................................................. 20 4 THE EMPIRICAL STUDY ............................................................................................................................... 22 4.1 IMPLICATIONS FOR STRATEGIC AND VALUE CHAIN MANAGEMENT ............................................................................... 22 4.1.1 About ShDAG ......................................................................................................................................... 23 4.1.2 About the Shtokman project ................................................................................................................. 25 4.2 MURMANSK REGION AND SHTOKMAN PROJECT ....................................................................................................... 29 4.3 IMPLICATIONS FOR THE CLUSTER APPROACH THEORY ...............................................................................................