German-Russian Flagship Projects

Moscow's Cancellation

The asset swap between Wintershall and Gazprom had been already agreed upon in December 2013 and was originally intended to be completed by the end of 2014. The necessary authorizations had already been issued by Berlin and Brussels back in late 2013, which proved very advantageous, because they would have been politically much more difficult to obtain, once the conflict with Moscow escalated in 2014. The deal fell through in December 2014, when Gazprom unexpectedly canceled the "South Stream" gas pipeline project, because of the EU's persistent obstructions, and replaced it with a new "Turkish Stream" project. (german-foreign-policy.com reported.[1]) At the same time, Gazprom announced its intentions to change the company strategy. The strategy had consisted of seeking control of the entire product chain from the source to the consumer, maximizing, thereby, both profits and influence. With the escalation of the conflict with the West, this strategy became no longer feasible, according to Moscow at the time, and therefore the planned asset-swap was canceled in mid-December 2014. For Wintershall, this cancelation was a serious setback. It signified the end of Wintershall's strategic efforts to obtain direct access to gas deposits in Russia, the country with the world's largest gas reserves.

Siberian Natural Gas Deposits

Gazprom's change of course and last Friday's asset-swap opens new perspectives. The Russian company will take the entire gas commerce and storage businesses, initiated in their Wingas joint venture with Wintershall. Gazprom will own Wingas completely, giving it control over West Europe's largest gas storage plant in Rehden (Germany) and will be active in other EU countries,[2] giving Moscow - who's interest in all levels of the EU's source-to-consumer product chain has apparently been reawakened - more influence on the EU's natural gas sector. Most important for Wintershall, however, are the opportunities derived from access to the new Russian gas deposits. BASF's subsidiary, Wintershall, which, together with Gazprom, has been pumping gas from Block I of the Achimov formation of the Urengoy gas field since 2008, will also become a shareholder in Blocks IV and V of the same field, with 25.01 percent. Urengoy is one of the world's largest gas fields, but has already significantly been exhausted. Unexploited deposits are mainly in the nearly inaccessible Achimov formation. In 2013, Wintershall and Gazprom extracted about 2.4 billion m³ of gas from Block I. The company is hoping to be able to extract an annual volume of at least eight billion m³ of gas from Blocks IV and V. German consumption oscillated most recently in the neighborhood of 80 billion m³ annually.

"The Best Man We Have In Europe"

Alongside Wintershall, a second EU-based gas enterprise has recently obtained access to the Achimov gas production. Gazprom and the Austrian OMV Company announced last Friday, that the latter had bought 24.98 percent of the shares in Blocks IV and V of the Achimov formation. Gazprom therefore maintains a thin majority, Wintershall, a blocking minority. At the same time, the weight of the EU's gas companies is growing in the production project. By joining the project, OMV is executing a change of strategy. It was one of the "Nabucco" Pipeline project's initiators in 2002, which, deemed a transatlantic influenced anti-Russian venture, was supposed to deliver gas from the Caspian Basin to the EU, bypassing Russia. The "Nabucco" project, has since collapsed. (german-foreign-policy.com reported.[3]) Observers had noted with interest that the OMV changed its CEO at the end of March, naming Rainer Seele - who took office July 1 - to manage the company. For years, Seele had been in management positions in Wintershall, ultimately as Board Chair, supervising the BASF subsidiary's business with Russia. Just before he switched to OMV, speaking of Seele, Gazprom's manager commented, "he is the best man we have in Europe."[4] Seele, who maintains his position as President of the German-Russian Foreign Chamber of Commerce, is considered the driving force behind the OMV-Gazprom deal.

Nord Stream 2

The joint German-Austrian entry into the production at the Achimov formation is accompanied by a massive expansion of the "Nord Stream" gas pipeline. This was also decided last Friday. According to this decision, beginning in late 2019, a third and fourth line will be added to the "Nord Stream" pipeline carrying Russian gas to Germany. Together, these two new lines - like the two existing ones, which went into service in 2011 and 2012 - will bring 55 billion m³ of gas annually to Germany. This would provide Russia with the possibility of halting the transit of gas via Ukraine, permanently, if the construction of the "Turkish Stream" encounters problems. Since anti-Russian forces were put in power in Kiev, renunciation of a transit route crossing Ukraine has been an important objective of Russia's foreign policy on energy. Only some of the companies involved in "Nord Stream" will also participate in "Nord Stream 2." Gazprom is also the majority shareholder in "Nord Stream 2." The German companies, Wintershall and E.ON, along with France's ENGIE SA (formerly GDF Suez) are the "Nord Stream" shareholders involved in the Nord Stream 2 project. OMV and British-Dutch Shell have now joined them.

Signal Effect

The German government has declared it is explicitly in agreement with the intensification of German-Russian cooperation in the natural gas sector. The asset-swap had been approved back in 2013, according to the German Ministry of the Economy. "There is no need for re-verification."[5] This is even more surprising, given the fact that the Wintershall deal was explicitly considered one with "signal effect."[6] The German Committee on Eastern European Economic Relations (OA) calls the asset-swap and the "Nord Stream 2" project "flagship projects," that demonstrate "that the German economy is striving to further develop economic relations with Russia, even in a difficult environment."[7] The OA is hoping that "the joint business projects" can "promote political rapprochement" and that "politics can create better cooperation parameters."

Cold War

As during the first cold war, for Germany, the economically highly profitable natural gas cooperation is, of course, no obstacle to Berlin's continued participation in the West's policy of aggression toward Russia. (german-foreign-policy.com reported.[8])

[1] See The Scrapped Pipeline Project, EU's contradictions and The Scrapped Pipeline Project (II).
[2] Wingas is not only in Germany, but has branches in Belgium, Denmark; France, Great Britain; Austria, the Netherlands and the Czech Republic.
[3] See Das letzte Kapitel.
[4] Matthias Auer, Eduard Steiner: Die neue Seele der OMV. diepresse.com 27.06.2015.
[5], [6] Jürgen Flauger: BASF-Tochter und Gazprom besiegeln "Deal mit Signalwirkung". www.wiwo.de 06.09.2015.
[7] "Gemeinsame Leuchtturmprojekte". www.ost-ausschuss.de 04.09.2015.