Putin Veto

Trans-Siberian Distress

Gazprom basf ceos imago ap
Gazprom's Alexei Miller and Kurt Bock of BASF.
  • Why it matters

    Why it matters

    A gas exploration deal between Gazprom and BASF has been cancelled, a sign of how relations between Russia and Europe are deteriorating further.

  • Facts

    Facts

    • The Russian government recently called off another energy deal, the South Stream project, though work had begun building a pipeline across the Black Sea.
    • Without the joint venture, BASF will find it harder to shift away from the lower-margin business of gas trade.
    • In a news conference on Thursday, Russia’s president acknowledged western sanctions are hurting the economy and are the cause of the ruble’s falling value.
  • Audio

    Audio

  • Pdf

BASF and Gazprom on Thursday called off a planned joint venture to mine natural gas in Siberia amid pressure from the Russian government.

Gazprom, the world’s largest gas producer, and BASF, the world’s largest chemicals maker by sales, had planned to jointly explore gas fields in western Siberia.

Under the deal, Gazprom would have taken BASF’s 50-percent stake in a shared gas and gas storage business, Wingas. In exchange, Wintershall, a BASF subsidiary, would have received a stake in two further blocks of the Achimov formation, a gas and condensate field in Urengoi, Siberia.

A spokesperson from BASF said the deal was cancelled due to the “difficult political situation.”

According to sources close to the German company, Russian President Vladimir Putin blocked the plan to transfer the gas fields to BASF.

 

Achimov worker dpa
On or off? Deal evaporates. Source: DPA

 

It is not the first time a major energy deal between Europe and Russia has been cancelled amid rising tensions over the Ukraine.

In early December, Mr. Putin put an unexpected stop to construction of the South Stream pipeline, a €40 billion, or $50 billion, project involving western partners to build a natural gas pipeline through the Black Sea to western Europe.

Although Germany’s economics ministry had approved the BASF deal with Gazprom in 2013, there had been some concern among industry observers in Germany that Wingas, the joint venture, would become wholly Russian-owned.

“We regret that the asset swap will not go ahead.”

Kurt Bock, BASF’s chief executive

BASF and Gazprom have been partners since 1990 and said they plan to continue working together.

“We regret that the asset swap will not go ahead,” said Kurt Bock, BASF’s chief executive in a company statement. “We have been working with Gazprom for more than 20 years and will continue to do so in our other joint ventures.”

Achimov-Formation (Text)

 

A few weeks ago, Mr. Bock had signalled that the swap would go ahead. Planning for the deal had begun two years ago.

No changes are planned to BASF’s oil and gas strategy, Mr. Bock said Thursday. “We are focusing on profitable growth at source in select oil and gas-rich regions in Europe, north Africa, Russia, South America and the Middle East.”

But the failure of the deal is bad news for BASF, which had planned to shift its oil and gas business towards exploration and production and away from its lower-margin gas-trading business. In their shared trading business, BASF and Gazprom had achieved revenues of €12 billion, but only a 4 percent return on sales.

The deal’s collapse will negatively affect BASF’s results since the German company won’t be able to account for the gas trades more advantageously as an activity set for disposal. Instead it will have to book expenses of €113 million in 2013 and €211 million in 2014.

The planned gain on the sale for 2014 will also not go ahead, according to the German company. But BASF’s 2014 forecast, which predicted a slight increase in profit before one-off effects, still appeared to be reachable, the company said.

 

BASF WTB

 

Siegfried Hofmann writes about chemicals and pharmaceuticals for Handelsblatt. To contact the author: hofmann@handelsblatt.com

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