Gazprom Seals Major Gas Deals in Europe

Gazprom Seals Major Gas Deals in EuropeGazprom Seals Major Gas Deals in Europe

Russia's Gazprom has bolstered its industrial presence in the heart of Europe with two major gas deals, despite tensions with Moscow over the conflict in eastern Ukraine.

The first of the deals, an asset swap with German chemicals group BASF 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", Reuters reported.

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.

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.

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 and BASF/Wintershall, Austria's OMV, ENGIE of France and Royal Dutch Shell, ensures that new pipeline capacity from Russia will come on line in 2019.

Reliable Gas to Europe

"The fact that the global energy majors participating in the project bespeaks its significance for securing reliable gas supply to European consumers," said Gazprom Chairman Alexei Miller in a statement.

The deals come at a time when many western companies are reducing their dependence on Russia. However, there have been tentative signs of an easing of tensions with the Kremlin in recent months.

Separately, OMV, a longstanding 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."

But Nord Stream 2 will come on line just as a rival pipeline 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.

New liquefied natural gas exports from the US should also be in full swing by then and likely landing on Europe's shores in significant volumes, a development that could challenge Russia's market share.

Under the swap deal, Gazprom will receive 50% of oil and gas producer Wintershall, most of whose assets are Dutch but one of whose platforms is operated in 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.