The Party Over, BASF Leaves Russia With a Hangover

Like a flaring stack, BASF’s 30-year partnership with Russia has gone up in smoke.

One of the architects of the Nord Stream, BASF pre-warned investors on Tuesday that it is writing down its stake in the pipeline that’s been transporting Russian gas to its chemical plants in Germany and Europe for over a decade.

In total, BASF is booking EU7.3 billion in non-cash impairments that also cover its remaining stake in its legacy oil-and-gas business Wintershall DEA, which is pulling out of Russia following the invasion of Ukraine.

BASF and Gazprom’s relationship can be traced back to 1990, and a long-term agreement to bring in gas from the state-owned group to power Germany. The two companies went on to cooperate widely, from the exploration and production of West Siberian fields to natural gas trading.

Today highlights an abrupt end to years of ceremonies, ribbon-cutting, anniversaries and bear hugs between the German chemical maker and state-owned Gazprom and their CEOs. BASF was always a frontrunner when it came to Russia and their relationship blossomed over the years. It was the first German company to get on board for the South Stream project in 2011, winning the praise of Mr. Putin at that particular ceremony. In the end, the South Stream never got built. And neither did Nabucco, the alternative pipeline project supported by the European Union that would have hooked the bloc up with energy from the Middle East, lessening its reliance on Russian gas.

The Ludwigshafen-based company will book EU5.4 billion of the impairments in the fourth quarter. It’s reconsolidating Russian exploration and production activities of Wintershall DEA “due to the extensive loss of actual influence and economic expropriation.”

“Wintershall DEA intends to fully exit Russia in an orderly manner,” BASF said in a statement today.

It’s a far cry from the days when Gazprom CEO Alexey Miller and BASF counterpart Jurgen Hambrecht signed agreements and spoke of “mutual trust and appreciation.”

Few in the financial community will be surprised by the impairments, but there could potential implications for BASF if the flow of dividends from Wintershall DEA are constrained going forward, Moritz Melsbach, vice president and senior analyst at Moody’s Investors Service said in a report today.

“These events come at a time when BASF’s operating performance is expected to weaken and the company is accommodating substantial investments into a new Verbund site in China, with the majority of investments expected in the 2023-25 period,” Melsbach and colleagues Djena Kern and Matthias Hellstern said in the note.

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