BASF, Gazprom swap assets, sign pipeline deal | Business| Economy and finance news from a German perspective | DW | 04.09.2015
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BASF, Gazprom swap assets, sign pipeline deal

German chemicals company BASF and Russian energy giant Gazprom have completed an asset swap. This comes as the two agree to expand a controversial pipeline that some fear Russia could use for foreign-policy leverage.

Germany's BASF and Russia's Gazprom have agreed to complete an asset swap originally inked in 2013.

State-controlled gas giant Gazprom will receive BASF's gas trading and storage business in exchange for more shares in Siberian gas fields. The equivalent-value deal was originally intended to be complete by the end of last year but was called off last December in response to Russia's role in the Ukraine crisis.

"We are continuing our strategy of focusing on profitable growth at the source in our targeted oil and gas-rich regions," BASF CEO Kurt Bock said in a statement. "We look forward to further expanding the joint production of natural gas and condensate with our partner Gazprom in western Siberia."

BASF subsidiary Wintershall will receive the economic equivalent of 25 percent plus one share in a gas field in western Siberia to be jointly developed by Gazprom and Wintershall that is expected to produce at least 8 billion cubic meters of natural gas when it goes online in 2018.

In return, Wintershall, Germany's largest natural gas and crude oil producer, will transfer its share in the currently jointly operated gas trading and storage business to Gazprom. Last year, BASF's share generated some 12.2 billion euros sales and EBITDA of around 260 million euros. The companies' joint gas transportation business remains unaffected.

Nord Stream expansion

The agreement comes on the same day Gazprom and BASF signed a shareholders' agreement on the Nord Stream 2 pipeline project, intended to bring Russian gas to Western Europe via the Baltic Sea. Gazprom owns 51 percent of the company building the new pipeline, while BASF holds 10 percent and three other companies - France's Engie, Austria's OMV and British-Dutch Royal Dutch Shell - hold the rest.

Gerhard Schröder at Nord Stream opening (Photo: Stefan Sauer dpa/lmv)

Former German Chancellor Gerhard Schröder is chairman of Nord Stream

"The fact that the global energy majors participate in the project bespeaks its significance for securing reliable gas supply to European consumers," Gazprom CEO Alexey Miller said.

Announced in June, Nord Stream 2 would double the capacity of the existing Nord Stream twin pipelines, which run from Vyborg in Russia to Greifswald in Germany and opened in 2011 and 2012. Wintershall announced it was joining the project in July.

EU politicians have warned that the Nord Stream project, along with other Russian projects, could allow Russia to exert political leverage over Central and Eastern European countries such as Ukraine and Poland while leaving Western European markets unaffected. At present, much of Russia's gas passes through Ukraine.

Geostrategic backstory

Last year, Russia unilaterally annexed Ukraine's Crimea region. Crimea had been part of Russia until 1954 when Soviet leader Nikita Kruschev transferred administration of the peninsula from the Russian to the Ukrainian Soviet Socialist Republic.

After the fall of the Soviet Union, Crimea had the status of an autonomous special administrative region within Ukraine. The region's population had remained predominantly ethnic Russian. Its return to Russia occurred in 2014, after a hastily organized referendum approving the move, which Moscow characterized as a "reunification".

The reasons for Russia's retaking Crimea were geopolitical: Moscow had maintained leases on major naval bases on the peninsula throughout the post-Soviet era, and stationed thousands of Russian sailors and soldiers there. Crimea was - and is - home to Russia's Black Sea fleet, and therfore it has high geostrategic significance to Moscow.

After democratically elected Ukrainian President Viktor Yanukovich, who had been accused of corruption, was toppled in an American-supported uprising in February 2014 and replaced by US-backed leaders, Moscow worried it could see its Black Sea fleet ejected from Crimea and replaced by American naval bases. The United States has had a long-standing geostrategic interest in drawing Ukraine into the American geopolitical orbit in order to weaken Russia's geostrategic position.

In addition to annexing Crimea, Moscow also gave its backing to armed rebels in Ukraine's far east - in border regions which, like Crimea, were predominantly ethnic Russian. The Ukrainian army, various Ukrainian volunteer militias, and Russian-backed separatist militias supported by Russian troops and materiel have since got bogged down in bloody fighting that has killed thousands and left much of the Donbass region in ruins.

Russian energy assets have been the target of western sanctions intended to pressure Moscow to back down. The advent of sanctions dismayed many German business leaders, since several thousand German corporations have assets and long-term investments in Russia.

sgb/ng (AFP,Reuters,AP)