Keep an Eye on Distrigas

Everybody has their eyes on the Belgian company Distrigas, which will soon become ripe for the picking as Suez will be forced to sell its majority stake as part of its merger requirements with the EC. Among the potential suitors (which is practically everyone) is the monstrous EDF, whose chairman Pierre Gadonneix openly stated his interest in the company at the Rome conference, along with plans to invest outside of Europe for the first time in the United States and Russia. Panic quickly insued, and trading of Distrigas shares was suspended on the Euronext Brussels (it’s illegal under Belgian law to make such statements). There are major concerns over who will be the next owner. Suez will hold a “transparent” auction to swap assets for the stake – no cash accepted. The Belgians are terrified that the French state, through EDF, will end up controlling their energy sector, but there are also other outcomes to watch, such as Spain’s Gas Natural (which is keen) and Italy’s Enel (which is feigning disinterest). While Europe’s energy titans squabble, I of course am keeping an eye on the quiet contender, Gazprom. In many ways, Distrigas would be an ideally positioned energy asset to own, and I imagine the executives at the Korporatsiya are salivating over it.

Gazprom is interested in extending its reach into Europe’s downstream market. This adds value to its upstream business by allowing it to sell its gas directly to end consumers. It also creates greater security of demand for Gazprom and allows it greater influence over its main market.Distrigas is active in seven countries and has an annual turnover of 4.6 billion euros. The company also boasts a dramatically diversified supply portfolio, with large portions of its gas coming from Norway, Algeria, and even Qatar. Nobody is really talking about Gazprom as a contender in the auction, although its ability to offer Suez highly sought-after assets in Russia and Eastern Europe should not be discounted. Also we know that last summer during the negotiations to include Total in the Shtokman project, there were rumors that Gazprom was able to insert itself in the Suez-GdF merger, which shows that there are already active links between the two companies (remember Sarkozy’s secret cell phone call during a summit with Putin?). Gazprom would probably also likely get a kick out of the symbolic meaning of controlling the distribution of natural gas to Brussels – being able to cut out the lights at the offices of the European Commission should they push through on unbundling. Unlikely, but a priceless image.