Gazprom Signs Two Important Deals    



Gazprom is the only producer and exporter of LNG in Russia and pioneer among Russia’s largest oil producers.

Gazprom announced on September 4th, 2015, about the successful closure of two major gas deals in Europe in spite of Europe-Moscow row in Eastern Ukraine.

The first deal is more of an asset swap between Germany and Russia.  Gazprom has signed an MOU with BASF, a German Chemical group to let their oil and gas production unit Wintershall have access to a greater stake in the Siberian gas fields, in exchange for greater gas trading and storage in Germany.

This was viewed with scepticism, as only nine months ago, BASF had abandoned the plan to go ahead with the deal sighting “difficult political environment”.  In response to press queries, BASF has responded saying acquiring Russian natural gas would help restore European energy requirements.

The second deal that Gazprom has bagged is to deliver gas to Europe via the Baltic Sea, bypassing Ukraine.  This will mean doubling the capacity of the Nord Stream pipeline.

The European Union, with a view to loosen Russia’s stronghold on E.U’s gas supply, had encouraged other suppliers to supply gas from the Caspian Sea and the United States.  Under this pressure, Gazprom abandoned its South Stream pipeline project, designed to deliver gas from Russia to Europe via the Black Sea and Bulgaria, last year.

However, the current Nord Stream agreement formed amongst global energy majors such as the Western energy companies, Germany’s E.ON and BASF, Austria’s OMV, Engie of France and the Royal Dutch Shell bespeaks its significance.  The new Pipeline from Russia is expected to be fully functional by 2019.

Under the swap deal, Gazprom will receive 50% of oil and gas producer Wintershall Noordzee, most of whose assets are Dutch but one of whose platforms is operated in UK waters.

The German government has indicated that these deals between companies from the two countries is in no way an indicator of improved relations between Germany and Russia and that this is purely a monetary transaction having no influence in their political scenario.

 It is surprising that this deal has been struck at a time when many western countries are shunning any transactions, given Russia’s sanctions and economic weakness.  U.S. energy envoy Amos Hochstein views this as a political move between the two countries, more than an economic one.  He also felt that this deal would result in cutting off Ukraine totally from gas supplies, causing devastating results to European energy security as a whole, in particular for Eastern and Central Europe.

The German blue-chip DAX index indicated a decline, which also reflected in the BASF Share value which fell by 2.6%.

Rainer Seele, who earlier served BASF, summarizes this as a “trustful partnership”.

Ben Van Beurden, CEO of Shell, who is partnering in this new pipeline project feels such projects are vital to meet Europe’s energy demand, given that the gas production in Europe as such, is falling.

Source: Gazprom