OAO Gazprom (OGZD) plans to take over BASF SE (BAS)’s natural gas trading and storage in Europe and gain North Sea assets as the Russian export monopoly seeks to defend its share of the market against mounting competition.
Under a swap deal signed today, Gazprom will gain full ownership of trading ventures now held equally with BASF’s Wintershall AG unit, including storage in Germany and Austria, the companies said. BASF will add stakes in Siberian projects as it expands its oil and gas production to bolster the world’s largest chemical business.
Gazprom, supplier of about a quarter of Europe’s gas, has agreed to price discounts this year to hold onto customers as the economic downturn, increasing global liquefied natural gas capacity and the growing influence of the spot market crimped demand. In September, the European Commission started probing its pricing and supply policies in eastern and central Europe.
“Gazprom appears to be playing a long-term game of accepting lower gas prices now but agreeing asset swaps for increasing its engagement and influence in European gas markets,” Citigroup Inc. (C) said in a research note. “BASF may be taking the view that selling Wingas is a price worth paying to help facilitate lower gas and energy costs now.”
BASF uses petroleum-based feedstock to produce chemicals, so having its own production may help the company hedge against price growth and support earnings when demand for chemicals slumps. BASF, which has worked with Gazprom for more than 20 years, may pump more than half its oil and gas in Russia, the world’s biggest producer of the fuels, according to Bloomberg calculations.
Gazprom will get half of Wintershall Noordzee BV, which operates projects in the southern waters of the North Sea, as well as full control of the Wingas, WIEH and WIEE trading units and storage, BASF said in a regulatory filing. The assets contributed 8.6 billion euros ($11 billion), or 12 percent of total sales for the Ludwigshafen, Germany-based company in 2011.
Wintershall will get 25 percent plus one share in blocks 4 and 5 of the Achimov formation in the Urengoy field in Siberia and has an option to raise its stake to 50 percent.
The assets are of “equal value,” Anna Bungarten, a spokeswoman for Kassel-based Wintershall, said by e-mail. She declined to disclose any numbers, citing an agreement with Gazprom. Wingas holds about 20 percent of the German gas-supply market and operates in Belgium, Denmark, France, the U.K., Austria, the Netherlands and Czech Republic, according to its website. WIEH supplies Gazprom’s gas to German customers, while WIEE delivers the fuel to southeastern European countries.
The companies have been discussing a deal since March 2011 under a plan that didn’t include the trading businesses.
Subject to approval by “relevant” regulators, the deal will be completed by the end of next year and financially retroactive to April 1, 2013, BASF said. Alexei Kokin, an analyst at UralSib Capital in Moscow, said by phone that he questions whether German authorities will approve the deal.
Gazprom said last year the EU wanted to study documents from a fully owned German trading unit and a Czech venture “to assess the compliance of their activities with EU competition rules.” Regulators had earlier seized documents from the offices of Gazprom units and customers in Europe.
The deal will add more than 2 billion cubic meters to Gazprom’s storage capacity, supporting as much as 20 billion cubic meters of additional flow through the Nord Stream pipeline from Russia direct to Germany, Graham Freedman, a senior analyst for European gas and power at Wood Mackenzie in London, said by phone.
Expanded storage “will certainly help them to put more gas to the pipeline,” Freedman said. Nord Stream last month opened the second line to boost annual shipment capacity to 55 billion cubic meters a year.
Wintershall is a partner in Nord Stream and at Gazprom’s Yuzhno-Russkoye gas field, which is the main supply base for the link. The BASF unit also works with Gazprom at a separate Achimov gas project and on the planned South Stream pipeline.
Achimov blocks 4 and 5 hold 2.4 billion barrels of oil equivalent, according to BASF’s statement. The blocks may produce at least 8 billion cubic meters at plateau, with output expected to start in 2016, according to the statement.
Wintershall may produce produce at least half its oil and gas in Russia, according to Bloomberg calculations based on the company increasing its stake to 50 percent. The unit is set to raise output to at least 160 million barrels of oil equivalent by 2015, from 140 million barrels of oil equivalent this year, BASF said.
BASF’s exit from trading is in line with its strategy to expand oil and gas exploration through organic growth and acquisitions, Chief Executive Officer Kurt Bock said in the statement. Gaining stakes in Gazprom’s assets allows Wintershall to boost production without the risk and expense of developing prospects from scratch.
In Europe, Gazprom plans to use underground storage to respond to surges in demand during cold snaps. The gas exporter rejected requests from customers to raise supplies early this year as winter temperatures dropped from Siberia to the U.K.
“For Gazprom, the most valuable part is storage,” UralSib’s Kokin said. “It will help Gazprom meet its peak demand in Europe.”
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