New Cold War.org, Sept 7, 2015
Three news articles are enclosed. Read also a full background here: also: Competition and diplomacy intensifying over proposed Asia-to-Europe gas pipelines, news compilation on New Cold War.org, Aug 30, 2015.
Update: In view of Nord Stream gas pipeline project, Russia will halve the capacity of planned Turk Stream, Reuters, Oct 6, 2015
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Gazprom seals big gas deals in Europe despite Ukraine crisis
By Vera Eckert and Oleg Vukmanovic, Reuters, Friday, Sept 4, 2015
FRANKFURT/MILAN | –Russia’s Gazprom (GAZP.MM) has bolstered its industrial presence in the heart of Europe with two major gas deals that were announced on Friday despite ongoing tensions with Moscow over the conflict in eastern Ukraine.
The first of the deals, an asset swap with German chemicals group BASF (BASFn.DE) that gives Russia greater access to gas trading and storage in Germany, was a surprise as the companies had abandoned it only nine months ago, citing a “difficult political environment”.
Pressed on what had changed since, BASF declined to respond directly. Its oil and gas production unit Wintershall, which will secure more stakes in Siberian gas fields under the swap, said only that it was convinced that Russian natural gas would help ensure energy security in Europe.
The second deal would double the capacity of the Nord Stream pipeline to deliver gas to Europe through the Baltic Sea, bypassing Ukraine. [1]
The German government warned against interpreting the deals as a sign that relations with Russia were improving, saying there was no link with the Ukraine crisis or Western sanctions against Moscow. “These are company decisions that the German government has no influence over and does not try to influence,” Martin Schaefer, a spokesman at the foreign ministry.
The European Union has talked about loosening Russia’s grip on the EU’s gas supply. It currently supplies one-third of the gas used by the bloc.
Gazprom abandoned its South Stream pipeline project, designed to deliver gas from Russia to Europe via the Black Sea and Bulgaria, last year under EU pressure. The EU has instead encouraged the development of alternative supplies from the Caspian Sea and the United States.
But the Nord Stream agreement with a group of Western energy companies — Germany’s E.ON (EONGn.DE) and BASF/Wintershall (BASFn.DE), Austria’s OMV (OMVV.VI), ENGIE EONGIE.PA of France and Royal Dutch Shell (RDSa.L) — ensures that new pipeline capacity from Russia will come online in 2019.
“The fact that the global energy majors participate in the project bespeaks its significance for securing reliable gas supply to European consumers,” said Gazprom Chairman Alexei Miller in a statement.
BASF shares were down 2.6 percent, in line with the decline in the German blue-chip DAX index.
The deals comes at a time when many Western companies are reducing their exposure to Russia because of sanctions and broader weakness in the Russian economy.
U.S. energy envoy Amos Hochstein said the Nord Stream deal, just like the abandoned South Stream project, was more about politics than economics. “It carries the risk of allowing Gazprom to cut off Ukraine,” from gas supplies, Hochstein said in an interview in Washington. And if that were to happen, it would be “devastating for Ukraine and damaging to European energy security as a whole, but particularly for Eastern and Central Europe,” he said.
But there have been tentative signs of an easing of tensions with the Kremlin in recent months.
German officials have praised Russia’s approach during talks to seal an accord over Iran’s nuclear programme. They say Moscow has also shown signs that it is prepared to play a more constructive role in discussions over how to resolve the civil war in Syria — the source of many of the hundreds of thousands of migrants heading for Europe.
‘Trustful partnership’
Separately, OMV (OMVV.VI), a long-standing partner of Gazprom, reported progress in its own asset-swap talks with the Russian gas monopoly.
OMV Chief Executive Rainer Seele, a German who recently joined the Austrian firm after many years at BASF, spoke of extending a “trustful partnership”.
Shell’s CEO Ben van Beurden, partner to the pipeline deal, stressed Europe’s dependence on Russia. “New projects like Nord Stream 2 are needed to ensure that Europe’s demand for energy is met, especially as gas production in Europe itself is falling,” he said.
But Nord Stream 2 will come on line just as a rival pipeline [Turkish Stream] is supposed to bring Caspian gas to Europe, boosting competition for market share in the bloc and loosening the ties between politics and energy security. [See Virtual pipelines, Natural Gas Europe, July 7, 2015, in aforementioned news compilation on New Cold War.org on Aug 30, 2015.]
New liquefied natural gas (LNG) exports from the United States should also be in full swing by then and likely landing on Europe’s shores in significant volumes, a development which could challenge Russia’s energy dominance.
Under the swap deal, Gazprom will receive 50 percent of oil and gas producer Wintershall Noordzee, most of whose assets are Dutch but one of whose platforms is operated in UK waters.
Britain’s energy ministry said it would examine the deal as closely as “any deal involving assets within British waters”.
Warburg Research said the swap deal should be positive for BASF in the medium to long term, as future cash flow from the gas fields surpasses that from the swapped assets.
Note by New Cold War.org:
[1] Nord Stream is the longest undersea pipeline in the world at 1,222 km. It connects Vyborg, Russia to Greifswald, Germany under the Baltic Sea. It consists of two parallel pipelines with an annual capacity of 55 billion cubic meters, inaugurated in 2011. The expansion agreement recently reached will double that capacity, to be opened in 2019.
Gazprom keeps scoring goals, signs seemingly-dead asset swap with BASF
Natural Gas Europe, Friday, Sept 4, 2015
Gazprom scored some goals also on Friday. In a few hours, it signed Shareholders’ Agreement on the Nord Stream 2 project; agreed with Austria’s OMV over the importance of long-term cooperation; and more importantly, it signed an agreement to close the deal on the exchange of assets with BASF’s subsidiary Wintershall Holding.
‘Today in Vladivostok as part of the Eastern Economic Forum Alexey Miller, Chairman of the Board of Gazprom, and Kurt Bock, BASF’s Chief Executive Officer, signed an agreement to close the deal on the exchange of assets between Gazprom and the company Wintershall Holding GmbH’ reads a note released on Friday.
According to the Wall Street Journal, the surprise U-turn underscores the challenge multinationals face navigating the standoff between Russia and the West over separatist violence in Ukraine.
http://www.wsj.com/articles/basf-gazprom-renew-abandoned-asset-swap-plan-1441345243
The multibillion-euro asset swap with Germany’s BASF seemed dead in December 2014. BASF will expand its oil and gas production, while exiting gas trading and storage. Gazprom will control a jointly operated European gas trading and storage business, including the biggest underground gas storage facility in western Europe.
Meanwhile, Gazprom also reached other agreements. Miller met with OMV CEO Rainer Seele. If the deal is concluded, OMV will acquire a 24.98 per cent stake in the in the development of Areas IV and V of the Achimov formation of the Urengoy oil, gas and condensate field in Russia, in exchange for a participation in assets of OMV.
“This agreement is another step towards cooperation along the entire value chain with Gazprom. We are importing gas from Russia for our European customers. We are investing together into the security of supply realizing the Nord Stream 2 project and we are now extending our trustful partnership towards the production of natural gas in Siberia,” Rainer Seele commented.
As said by Seele, Gazprom signed a Shareholders’ Agreement on implementation of the Nord Stream 2 pipeline project with BASF, E.ON, ENGIE, and Shell.
“Nord Stream 2 will double the throughput of our direct, state-of-the-art gas supply route via the Baltic Sea. It is important that those are mostly the new gas volumes, which will be sought for in Europe due to the continuous decline in its domestic production.The fact that the global energy majors participate in the project bespeaks its significance for securing reliable gas supply to European consumers,” Miller commented.
Russia’s hard bargain jeopardizes Turkish Stream
Daily Sabah (Turkey), Aug 29, 2015
It has been almost a month since Russian Energy Minister Alexander Novak said that Moscow and Ankara had agreed to a 10.25 percent gas price discount for Turkey, however the gas price discount agreement between Russian gas giant Gazprom and Turkey’s Botas has not yet been signed. Energy sector sources believe that Russia’s hard bargain on the price discount is the main reason for delaying the agreement while they add that Russia’s new conditions for Turkey also jeopardizes the Turkish Stream.
Turkish Stream, a natural gas pipeline project to deliver Russian natural gas to Europe via the Black Sea and Turkey through four pipelines with a capacity of 63 billion cubic meters, has drawn international attention since proposed last December by Russian President Vladimir Putin to replace the defunct South Stream project. The project is planned as four pipelines each with a capacity of 15.75 billion cubic meters. The pipeline will pass 660 kilometers under the Black Sea, followed by 250 kilometers in the Thrace region of Turkey until the Greek border. Turkey has been in favor of starting the first line of the Turkish Stream since its announcement, but the project could not start due to the failure of Turkey and Russia to reach an agreement.
According to the mutual agreement between Gazprom and Botas, the price of natural gas purchased by Turkey must be updated every three years. Thus, since January Turkey has demanded a 10.25 percent discount and a $1 billion retroactive payment from the Russian side. However, Russia has been procrastinating, failing to sign the agreement and trying to link the discount issue to the Turkish Stream deal. According to sector sources, Russia is also imposing new conditions on Turkey since the country has been struggling to form a new government since the June 7 elections. To start the project, Turkey need to sign an intergovernmental agreement with Russia, which needs to be ratified by Parliament.. However, considering current political conditions, it is almost impossible for Turkey to sign and ratify the intergovernmental agreement with the country heading to another general election on Nov. 1.
Nevertheless, sector sources indicate that Russia is pressuring Turkey to find an intermediate solution to start the first phase of the project as soon as possible, and Russia’s approach is considered as another problem. Moreover, some sector analysts claim that Turkey’s recent agreement with the U.S., which includes deployment of U.S. warplanes at Turkish airbases to intensify efforts in the ongoing fight against the Islamic State of Iraq and al-Sham (ISIS), and disagreement over the Syria issue have further damaged bilateral relations and negatively affected the gas deal. There have been problematic areas on foreign policy issues between Russia and Turkey, but in recent years both countries have managed to improve cooperation in various field, especially in the energy sector, so this argument seems to be not credible.
While these problematic areas concerning Turkish Stream are waiting to be solved by Putin and President Recep Tayyip Erdogan during their meeting in November, Russia is intensifying its diplomatic efforts to pave the way for the Balkan route of the project. Vedomosti, a Russian newspaper, reported in recent days that Greece, Serbia, and Hungary are about to sign joint memorandums of cooperation on the Turkish Stream and its route through their territories. The paper asserted that the Greek, Serbian and Hungarian foreign ministers would meet in Belgrade in September to announce an agreement that will see the exact route formalized.
The first line of the Turkish Stream is slated to cross the Black Sea and the length of the offshore part will be 910 kilometers. The length of the Turkish onshore section will be 180 kilometers and cost 3.3 billion euros. The first phase of the project was to be finished by the end of 2016, however how long these delays will postpone the project is not known.
