Russian Gas Link Offshoot Taps Investors as Sanctions Swirl

(Bloomberg) -- German natural gas network operator Gascade Gastransport GmbH is in talks with investors to raise money for a new pipeline that will carry more Russian fuel directly to Europe.

Gascade is in contact with potential partners for the 485-kilometer (301-mile) German offshoot of Nord Stream 2, according to Tatjana Bernert, a spokeswoman for the Kassel-based company co-owned by Russia’s Gazprom PJSC and Germany’s BASF SE. She declined to specify who the company is speaking with for the project known as Eugal.

Gascade is seeking investors as U.S. sanctions on Russia threaten energy projects including Nord Stream 2, a pipeline that will let Gazprom divert fuel flowing to the European Union via Ukraine into a second direct route under the Baltic Sea to Germany. Eugal, running from Germany’s Baltic coast, is scheduled to start in 2019 and would mainly transfer natural gas from Nord Stream 2 to Poland and the Czech Republic.

“There would probably be a bidding war if it wasn’t for the political uncertainty around Nord Stream 2,” Walter Boltz, a European energy consultant and former head of Austrian energy regulator E-Control, said by phone. “The project is interesting for gas pipeline operators who have to deal with flows from Nord Stream 2.”

Gascade will remain sole developer of the project that will cost a “lower single-digit billion-euro” figure to build, Gascade’s Bernert said. The company is looking for partnerships as well as investment, she said.

Gazprom and BASF’s Wintershall AG energy unit didn’t respond to requests for comment.

Eugal will have an annual capacity of 51 billion cubic meters, while Gazprom’s Nord Stream 2 will add 55 billion cubic meters per year when it’s completed in 2019.

German energy regulator Bundesnetzagentur has rejected projects in a national grid development plan that are related to Nord Stream 2 until the pipeline received all national approvals.

Eugal will likely be included in the next German gas development proposal in February next year, according to the nation’s association of gas transmission operators FNB Gas e.V. Once the project is approved by the regulator, pipeline owners can earn as much as 6.9 percent a year on their equity by collecting grid fees, according to Bundesnetzagentur.

“There will be no winner, the minority stake will be spread equally between the bidders” investing in Eugal, Jakub Skavron, a supervisory board member of Ceska Exportni Banka AS and a former director for M&A at Prague-based energy group Energeticky a Prumyslovy Holding AS, said by phone.

With assistance from Eyk Henning. To contact the reporter on this story: Weixin Zha in Frankfurt at wzha2@bloomberg.net. To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Andrew Reierson, Anna Shiryaevskaya.

Copyright 2017 Bloomberg News.

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