Gazprom Tightens Grip on European Gas Markets with BASF Asset Swap

on Nov 16, 2012

On 14 November 2012, the Russian natural gas giant Gazprom (MCX:GAZP) and Europe’s largest chemicals maker BASF (BIT:BASF) agreed on an asset swap which will see the Russian gas monopoly take full control of the European gas trading and storage activities jointly operated by both companies. BASF in turn will gain more access to Siberian gas fields as part of its strategy to expand its oil and gas production.

**Gazprom Swaps Assets with BASF**
Under the swap agreement, Gazprom will gain full ownership of trading ventures which the Russian energy giant currently operates with BASF’s Wintershall AG unit. As noted in BASF’s press release, Gazprom will get half of Wintershall Noordzee BV, active in the exploration and production of oil and gas in the southern North Sea, as well as 50 percent shares in the gas trading companies WINGAS, WIEH and WIEE including shares in natural gas storage facilities in Germany and Austria.

BASF, on the other hand, will acquire about a 25 percent stake in two blocks in the Urengoy gas field in western Siberia, with the option to increase the share to 50 percent.
Bloomberg quotes Anna Bungarten, a spokeswoman for Wintershall as saying that the assets are of “equal value”, although she declined to disclose any numbers.
**Russian Gas Monopoly’s European Prospects**

Gazprom, which supplies about a quarter of Europe’s gas, has been forced into re-negotiating its oil-indexed gas contracts with European utilities, with cheap North American shale gas and the growing influence of the spot market biting into Gazprom’s profits. The BASF asset swap, however, is likely to help the Russian gas monopoly get a tighter grip on European energy markets.

!m[](/uploads/story/828/thumbs/pic1_inline.png)“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 for its long-term benefit,” notes Andrew Benson at Citi Research, as quoted by the FT.
In addition, on November 15, Gazprom signed the final investment agreement with Bulgaria to build the South Stream gas pipeline, which will ship natural gas across the Black Sea to Southern and Central Europe.

Yet, the BASF asset swap could turn out to be politically sensitive, given the European Commission’s recently launched probe into suspected market abuses on behalf of Gazprom. Reuters quotes a BASF spokeswoman as saying that both the Commission and the Federal Antimonopoly Service of Russia were notified of the intention. The asset swap, expected to be completed by the end of 2013, is subject to regulatory approval.
**BASF Expanding Oil and Gas Production**
And while the swap deal is a way for Gazprom to increase its access to European markets, BASF is looking to expand its oil and gas production, as noted in the company’s press release. Bloomberg reports that BASF’s CEO Kurt Bock wants control of fuel supply with the purpose of cutting the company’s exposure to commodity price swings and reducing the advantage of US rivals with access to cheap shale gas.
BASF, which is Germany’s single largest user of natural gas, in October swapped assets with the Norwegian energy giant Statoil (NYSE:STO), with the deal giving the German chemicals maker shares in three North Sea oil and gas fields.
“BASF is clearly one of the companies that will provide Europe with energy in the next years,” notes Lars Hettche, Bankhaus Metzler analyst, as quoted by Bloomberg.


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