Asset Swap Deal between Gazprom and Germany‘۪s BASF Delivers Strategic European Assets to Russia

According to recent reports, a multi-billion dollar asset swap arrangement between Germany‘s BASF and Russia‘s Gazprom has been put back in motion after being terminated in December 2014.  The asset swap deal will see BASF‘s subsidiary, Wintershall, gaining a 25% stake in the development of the Urengoy gas fields in western Siberia (containing some 274 billion cubic meters of gas) in exchange for a range of strategically significant assets in Western Europe.

Gazprom would receive from Wintershall full control over a gas storage and trading company, Wingas Gmbh, a firm that generates some $12 billion in annual revenues and owns and controls the largest underground natural gas storage facility in Western Europe.  (IntelTrak has previously highlighted the strategic significance of other Wingas assets, that Gazprom has had a stake in previously, including a fiber optic cable network in Germany, that this deal would also implicate in the complete turning over of this company to Gazprom.)  Gazprom would also receive a 50% share in Wintershall‘s Nordzee BV business, which has oil and gas assets in the North Sea and produced revenues of some $13.6 billion last year.  This would mark the first time ever that Gazprom has owned production assets in Western Europe, taking control of some 22 platforms, including Wingate in the UK portion of the North Sea.

This swap arrangement was approved by the European Commission prior to the escalation of the Ukraine crisis and, even following the raft of targeted sanctions put in place amidst rising tensions, is viewed as a permissible transaction.

The deal was cast commercially as an opportunity for Gazprom to improve its distribution business in Europe, especially as it has faced growing competition and regulatory pressure.  The fact that this pressure has been the result of deliberate efforts to diversify away from Gazprom, however, has thus far been strangely left out of the narrative.  More broadly, the business community is striving to have this deal be interpreted as indicative of a political rapprochement.   The head of German lobbying group, Ostauschuss, said, ‘‘‘We hope that the joint economic projects convey a political rapprochement and raise hopes of creating improved framework for cooperation.‘

The reality is that this deal breathtakingly undermines the progress that the EU has been seeking to accomplish over the past several years in moving away from the commanding position the company holds over the European energy industry.  If this deal does, indeed, represent a new ‘‘‘rethink‘ by the business community vis-‘‘-vis Russia, it could usher in a new period of security-sensitive transactions.  These should require careful debate and oversight, as watershed deals like this one send an unmistakable signal to the Kremlin of crumbling Western resolve.