Latvia Might Just End Up With A Gazprom-Free Domestic Natural Gas Supplier By The End Of, Say, Next Year
I'll leave the following guess/prediction here so I can reference it later – I think Gazprom pulling out of Latvijas Gaze.
Who dis? See here:
The History of Latvijas Gaze
Latvijas Gaze was an integrated Latvian gas company. In it’s glory days it managed gas supply, transmission, distribution and storage.
A powerhouse. Especially in the days when gas supplies were a political decision and was handled with each country individually.
True, there was some limited gas trade between the Baltics, but only in 2018 Gazprom was forced by the European Commission to stop including resale bans in its contracts.
Anyway.
The shareholders of Latvijas Gaze then looked like this (2003, see graph).
Gazprom and #IteraLatvia shared a quarter (25%) stake each.
The biggest chunk, 47.15%, was owned by the German Ruhrgas Energie Beteiligungs.
Another 2.84% was a publicly traded slice on the Riga Stock Exchange, and the final bits went to the company's board.
Gazprom probably needs no introduction. But what about these other companies?
Itera Latvia is a Rosneft company. It was sanctioned in May 2022 as a company linked to a sanctioned person, Igor Sechin.
The German company is an even more interesting case, illustrating the deep and almost unbreakable friendship between Russia and Germany.
Ruhrgas And Russia
Ruhrgas is an old company. It started its operations between the world wars in Essen, Germany. This gas supplier and pipeline operator played a significant role in the history of energy relations between the Soviet Union and West Germany.
Konrad Adenauer's West Germany and the Soviet Union signed a trade agreement in 1958. Later, Willy Brandt's Ostpolitik led the countries to a 1970 agreement to extend the southern Soyuz pipeline (the one that now crosses Ukraine).
In 1974, Russian gas began to flow through Czechoslovakia to both East and West Germany simultaneously. This was the famous gas-for-pipes deal, where German steel for pipelines went to the Soviet Union in return for gas received in Germany.
What companies signed this agreement? Soyuzgazeksport on Soviet side and none other than Ruhrgas (& friends) in the West.
Germans and the Russians are not only very old friends in this area, but very good friends recently, too. This was not the last joint project between the countries. Ruhrgas in corporate forms that followed was involved in the construction of both Nord Stream 1 and Nord Stream 2 pipelines.
It is also an interesting piece of history that Ruhrgas, already as a part of Eon, held a few percent of Gazprom’s shares. It then, of course, amicably sold them back to the Russian company.
A side note: in the Estonian equivalent of Latvijas Gaze, Eesti Gaas, the partner to Gazprom and Itera Latvija was Finland's Fortum. Just so we get an idea of where Russia saw its gas friends.
The shareholders of Lietuvos dujos, Latvijas Gaze counterpart in Lithuania, were Gazprom, Ruhrgas and the Lithuanian government.
But back to Latvijas Gaze.
No Value In Latvijas Gaze
Today, this company is a different creature, a shadow of its former glory after it was broken in two stages.
When the EU's Third Energy Package came into force in Latvia, Latvijas Gaze was forced to divest its shares in gas transmission and storage infrastructure. Their shares were acquired by the state-owned electricity transmission grid operator Augstspriegumatikls, forming Conexus Baltic Grid, the company that now manages Latvia's gas storage and transmission network.
Latvijas Gaze kept the gas supply business and the gas distribution infrastructure (“small gas pipes” in human speak). Then came the second stage.
Last year, the company failed to meet its obligation to store sufficient gas for Latvian households by the start of winter. Gazprom was "freezing" Europe, naturally, Latvia could not be left behind.
But Gazprom failed in Europe and in Latvia too. What is more, this card is a one-off. You play it once and the end of your business becomes only a matter of time.
So the company started selling what it still had of value.
The sale of the gas distribution network was completed on 17 June 2023. It was acquired by Eesti Gaas, now a private Estonian energy company.
After this sale, the remaining assets of Latvijas Gaze were the undistributed profits (accumulated cash) and the gas contract and relations with Gazprom. The value of this contract became exactly zero after the Russian invasion of Ukraine. Company’s shareholders are a giant liability.
Its shareholders are now Gazprom, Itera Latvia (Rosneft) and the ailing German owned #Uniper, which was been dealt a fatal blow at the same time when Gazprom took to freezing Europe.
In addition to these companies, there are the money managers, the French infrastructure fund Marguerite Gas II. Their involvement in all of this seems to revolve around a request to pay out even more money in dividends this year.
Others agreed, so Latvijas Gaze distributed to its shareholders what it received from the sale of the pipelines, what it earned last year and what it had accumulated since 2018.
Therefore, the value of the company is rapidly approaching €0 – a zero value contract, pipes are gone and there is no money left.
How Will Gazprom leave
Will Gazprom leave? Probably inevitably. The question is one of form.
I would not rule out the possibility that Latvia is facing the same "oh, just take it" maneuver that the Russians performed in Germany in 2022.
The one where you just leave things as they are in the middle of winter and force the government of the country to intervene quickly to ensure that the company continues to fulfil its contractual obligations - or that someone else takes them over.
Or maybe Latvijas Gaze will end its life "not with a bang, but a whimper" and will just slowly fade into nothingness.
In case You are wondering, why is this posted on an obscure personal website – it is because I do this on my own spare time. I only have enough of it to write this and not to deal with the rest of it.
Ideas? Reach out via LinkedIn or Twitter (links above).