RPT-DEALTALK-BASF may seek to sell off gas pipelines

Thu Dec 13, 2012 3:41pm EST

Related Topics

* BASF may look to sell German gas pipelines

* Expected to focus even more on exploration

* Infrastructure groups seen interested in gas grids

By Frank Siebelt and Vera Eckert and Arno Schuetze

FRANKFURT, Dec 13 (Reuters) - As Germany's BASF SE switches focus to the control of natural gas resources, it could have at least one major cash-raising disposal in its sights: its majority stake in gas pipeline grid Gascade.

Selling its 50.1 percent stake in a business which transports gas over some 2,200 kilometres of pipeline, mainly from eastern German to the west of the country, could raise some 2.2 billion euros ($2.9 billion) for BASF to invest in buying more gas reserves, some analysts say.

Such a strategy of controlling key resources is seen by the chemicals company as increasingly important in supplying the raw material for it to convert into basic chemicals products and plastics.

"Most likely, exploration is looking lucrative and of long-term promise from their point of view, so worth investing in," said Thorsten Strauss, analyst at NordLB bank.

A spokeswoman for BASF would not comment on speculation about asset sales. But some banking sources believe discussions on the asset could start early next year.

"In my opinion, this deal is red hot," one source said.

Gascade, which BASF built after German reunification to avoid dependence on the incumbent at the time, E.ON Ruhrgas , could have strategic value to a buyer because it could become the focal point in a wider European gas network of the future.

But for BASF it may no longer fit its long-term plans.

The German group has already shuffled its assets in this sector and last month agreed an asset swap with Russia's Gazprom , owner of the rest of Gascade.

In that deal, BASF handed over gas trading and storage business activities, which it had shared with Gazprom, to its partner, in exchange for two more blocks in the Siberian Urengoi gas field.

It held on to its stake in Gascade, but having given up gas trading and storage, BASF may see little strategic value in owning the transport network.

One important factor allowing it to consider the sale of Gascade is that EU regulations demand pipeline owners give gas suppliers equal access to pipelines, which means BASF does not have to own the network to transport gas.

Other political issues could also come into play.

"Selling Gascade could have the additional advantage of avoiding having to deal with possible regulatory and political uncertainties in the European gas market in the next few years," said NordLB's Strauss.

MURKY AND COSTLY

He pointed out that gas pipeline issues have become politicised as projects such as Nord Stream and South Stream play a big role in Gazprom's geopolitical strategies.

The EU, wary of becoming too dependent on raw materials from Russia, will be monitoring closely the transparency and access debates affecting intra-EU pipelines.

This likelihood could make engagements in the sector time-consuming, murky and costly.

Some sources put Gascade's potential value at around 2.2 billion euros, if applying a rule of thumb that one km is worth 1 million euros.

Granted, this value may no longer apply in recessionary times, but Gascade's pipes are relatively modern and some argue should be valued above typical prices.

Sources said BASF might target companies such as Australian investment bank Macquarie, private equity firm Global Infrastructure Partners (GIP) and insurers such as Allianz or Munich Re.

For BASF, a possible sale of Gascade isn't just a matter of its own long-term strategy.

Transport margins have been falling in the German pipeline sector, curbing revenue in recent years, after the energy regulator put pressure on operators in order to stimulate competition and help bring down prices for consumers.

Such trends might also prompt Gazprom to seek to surrender its Gascade holding, the sources said.

Nevertheless, some analysts say gas pipelines have long-term promise and represent a stable investment opportunity, if investors look beyond the medium-term market lull.

"I would imagine that they would not like to surrender the pipeline grid altogether and would instead aim to keep some control there," said Lars Hettche, analyst at Metzler Equities.

But Hettche conceded BASF might see the long-term prospect of global oil and gas scarcity as an overriding factor.

In which case, he said, "they would consider that the exploration partnership with the Russians in Siberia has proven to be reliable and lucrative and may be worth intensifying".

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