Page 60 - bneMagazine March 2023 oil discount

60 I Eastern Europe bne March 2023
Russia has expropriated its upstream partnership with Wintershall in Siberia, a key to the long-planned next generation of Russian gas and liquids in Europe, and a main source of gas for NordStream. / bne IntelliNews
Putin's gas suicide and the end of the affair with Germany's Wintershall
Professor Thane Gustafson in Washington
utility giant E.ON) over the German gas transmission system. BASF was looking for cheaper transit prices; Gazprom was looking to penetrate the German gas midstream and access Germany’s municipal gas utilities. Ruhrgas stood in the way, and refused to budge.
The only solution was for both companies to bypass Ruhrgas, by building a new gas distribution and storage system of their own. In 2003 BASF and Gazprom founded Wingas,
a joint venture between Gazprom and BASF’s subsidiary Wintershall. The two partners proceeded to build an entirely new network, at a cost of some €5bn.
It was a daring move: at the time they began, they had not a single customer; and they built the entire system “on spec,” essentially on a wish and a prayer. There followed an epic battle, as BASF/ Gazprom and Ruhrgas fought tooth- and-nail to win contracts with gas buyers in Germany. Nothing like it had ever been done before. It took a decade of warfare, but it broke Ruhrgas’s monopoly forever. Indeed, Ruhrgas itself was soon acquired by the giant German utility E.ON, and today no longer exists as a brand name.
Simultaneously, in 2003 Wintershall and Gazprom founded a joint venture in what was then the largest gas field in Siberia, Urengoy. The joint venture, called “Achimgaz,” was intended to bring advanced technology to bear on the field’s deepest horizon, which was rich in both gas and in liquids, and where Gazprom had never worked before. The two partners jointly committed $700mn for the first phase, and each took a 50% stake. Wintershall invested $90mn up front.
The two partners spoke optimistically of the field producing for 43 years and yielding over $10bn. As the then-CEO of Wintershall, Reinier Zwitserloot, said proudly, “Just as we did once before, we are taking on the role of pioneers.”
The following year, in 2004, BASF and Gazprom deepened their partnership further. Gazprom increased its stake in Wingas to 50% minus one share;
Perhaps the most painful and expensive exit of Western companies from Russia has been that of Wintershall, Germany’s largest gas company and a subsidiary of the chemical giant BASF.
Over the previous 30 years BASF and Wintershall had built a deep partnership with Gazprom, which in many respects was the very symbol of the Russian- German entente of the post-Soviet era. As late as 2022, Wintershall was generating nearly 40% of its cash flow through three joint ventures with Russian companies affiliated with Gazprom. Half of Wintershall’s assets were held in Russia.
The parent company, BASF, was forced to write off €7.3bn in losses, stemming from Wintershall’s gas assets in Russia and its 15% share in the NordStream1 pipeline (the subject of my first post on Russian-German gas). It was not simply a financial disaster for Wintershall;
it was the unwinding of a vision that
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had been at the core of the company’s business for three decades.
The first blow came within weeks of the Russian invasion of Ukraine in February 2022, when Wintershall reported it
had lost control of its operations in Siberia and the price of its Russian gas had been cut. By the end of the year, according to Mario Mehren, the CEO
of Wintershall, Gazprom had emptied Wintershall’s account in Russia of some €2bn, which simply disappeared. As late as July, Mehren had vowed that he would not leave Russia. But finally, by the end of the year, Wintershall came under such acute public and financial pressure that it had no choice but to announce a complete withdrawal.
Thus ended an extraordinary odyssey. Wingas owed its origins to a joint rebellion by BASF (German’s largest gas consumer) and Gazprom, against the tight monopoly power then held by Ruhrgas (today part of the German