UPDATE 4-BASF, Gazprom agree on natural gas asset swap

Wed Nov 14, 2012 10:33am EST

Related Topics

* BASF gains access to two Siberian gas/oil blocks

* Gazprom gets gas trading, storage units in Europe

* Gazprom also gets Dutch gas/oil unit (adds Berlin ministry reserving right to intervene)

By Ludwig Burger and Vera Eckert

FRANKFURT, Nov 14 (Reuters) - BASF will grant Russian gas company Gazprom full control of their jointly run European gas trading and storage activities to gain more access to Siberian gas fields.

"Through the swap, BASF aims to further expand its production of oil and gas and to exit the gas trading and storage business," German chemicals group BASF said in a statement on Wednesday. It declined to provide a deal value.

"The traditional natural gas trading business,..., offers (BASF oil and gas subsidiary) Wintershall little possibility for differentiation," it added.

Pending regulatory approval, the no-cash transaction would be completed by the end of 2013, but the Berlin Economy ministry said it reserved the right to veto any decision.

Gazprom, for its part, has long been seeking better access to nearby downstream European markets where margins are still lucrative, even if pipeline gas from origins such as Russia has come under margin pressure as a result of cheap new shale gas output from North America.

State-controlled Gazprom's tighter grip on European energy markets could be a politically sensitive issue as governments are concerned about too much reliance on Russia.

Russia's wrangling with gas transit country Ukraine in 2006 and 2009 disrupted westbound gas supply in mid-winter.

During a few days last winter, Gazprom could not meet all of Italy's short-term gas orders, with the gas company saying more storage tanks were needed.

A BASF spokeswoman said the company has notified the EU Commission and the Federal Antimonopoly Service of Russia of its intentions, as required by the EU, which seeks to ensure its desired single energy market stays sustainable and competitive.

Analysts say wholesale gas trading in the EU already is highly developed and Gazprom would have to subject itself to EU rules that enforce price transparency and fair access.

A spokeswoman for the Energy Commissioner said that under energy directives, storage owners are required to give access to third parties and to be independent from suppliers.

RUSSIA GAINS FOOTHOLDS IN TRADING, STORAGE

Apart from seeking gas assets in Europe, Russia has also been acquiring oil refinery stakes in Germany.

Russian oil company Rosneft now commands around a fifth of German refining capacity after buying a stake in German oil company Ruhr Oel from Venezuela's PDVSA.

BASF's deeper involvement in Russian exploration comes despite Russian media reports last month that a proposed increase in the country's mineral extraction tax (MET) was deterring the German group.

BASF on Wednesday said the tax did affect its negotiation position. "We have taken the tax increase into consideration in the valuation of the assets," a spokeswoman said.

Two more blocks of the Achimov formation of the Siberian Urengoi gas field will be made available to Wintershall, which has long been a partner in the field's exploration with Gazprom.

BASF will receive 25 percent plus one share of blocks IV and V with the option to raise the stake to 50 percent.

The blocks, according to Russia's mining authority, have gas and hydrocarbon condensate resources of 2.4 billion barrels of oil equivalent (boe). The start of production is planned for 2016.

In return, Wintershall will give Gazprom the remaining 50 percent of shares the Russian firm does not already own in the joint venture trading firms Wingas and two smaller gas trading units, WIEH of Berlin and WIEE of Zug, Switzerland.

Gazprom will also receive the shares it does not already own in major European gas storage units in Rehden and Jemgum, Germany, as well as Haidach, Austria. Rehden is Europe's largest gas storage facility.

A 50 percent holding in activities of Wintershall Noordzee, which an oil and gas producer in the southern North Sea, is also part of the Gazprom package, while BASF will retain its holdings in gas pipeline transmission networks in Europe.

DZ Bank analyst Peter Spengler said the deal was beneficial for BASF.

"The gas trading market in Europe is highly regulated and margins decrease over time," he said, adding that gas exploration and production offers higher margins and less dependence on the business cycle.

BASF said the businesses it was transferring to Gazprom contributed 350 million euros ($445 million)to its 2011 earnings before interest and tax and 8.6 billion euros to 2011 group sales.

A note from Warburg Research said, "From Gazprom's point of view, the deal gives the company direct access to the European distribution gas market and provides the world's biggest producer with a significant market share in its key market." ($1 = 0.7867 euros) (Additional Reporting by Andreas Rinke, Melissa Akin, Barbara Lewis, Markus Wacket; editing by Keiron Henderson)

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