Losing the Plot on Distrigas

Last November we warned our readers to keep a close eye on the important Belgian company Distrigas, as Suez is required to sell its 57.3% stake in the company as part of its merger requirements. Pursued with enormous interest by several European national champions (including EdF and E.ON), Distrigas is a strategically important company, controlling a gas pipeline between continental Europe and the United Kingdom while active in seven markets. It is a critical company connecting natural gas sources to energy thirsty markets. And as we’ve argued here on the blog, there is reason to believe that Gazprom would greatly benefit from an interest in Distrigas. So do we have an official winner now? Yesterday and today the media has been reporting on the winner of the Suez auction for Distrigas: Italy’s energy giant Eni. Suez had said that it was not just looking for the highest bid, but rather the best asset swap deal. Eni comes to the table offering their valuable gas distribution network in Rome in trade for Distrigas, which has landed them “exclusive talks” to complete the negotiation for the stake.

Roberto Mascarello of Landsbanki Kepler tells Forbes that the deal is real home run for Eni: “Distrigas is a good company to have. It sells gas in the Benelux area, a weak business area for Eni; it offers infrastructure to carry gas from Russia and the North Sea. Distrigas completes the picture for Eni.“That’s not all: Distrigas has an enviable supply portfolio, with natural gas agreements coming not only from Russia, but also from Norway, Algeria, and even Qatar. With a turnover of 4.3 billion euros, the company moved 15.2 billion cubic metres of gas in 2007.But don’t let me tell you why Eni was in Distrigas – take it from Paolo Scaroni, Eni’s always interesting CEO, who is pitching the acquisition as a way for Eni to actually gain more “clout” in its relations with Gazprom.I find this to be an interesting spin from the Italian wildcat. We know full well that Gazprom has an interest in a company like Distrigas – they have an interest in extending their reach into European downstream, while adding value to upstream by obtaining direct access to consumers. It also creates greater security of demand for Gazprom and allows it greater influence over its main market – as well as control over the taps direct to Brussels.Was Scaroni being preemptive on this one, expecting some criticism and attacks down the road? There is no urgent reason to believe that Eni will fork over to Gazprom their newly acquired stake in Distrigas – even though the two companies have a major asset swap agreement that is still up in the air. We have also seen Russian state owned firms successfully co-opt European energy giants such as BP, Eni, Enel, and E.ON to participate in a variety of activities on their behalf.We can’t know what Eni’s plans for Distrigas are, but we do know that they boast probably the most friendly relations in Europe with Gazprom, so it’s hard to take it seriously when Scaroni, the only European energy executive to ever allow the Russian government direct access to Italian consumers, says that this acquisition will increase his clout and leverage with Moscow. Let’s not lose the plot here.