Nord Streams disappear from reporting

The Dutch Gasunie became the last foreign shareholder of Nord Stream 1 to write off its investments in this project after the explosion in September 2022. Before that, the German Wintershall did this, and E.On and Engie lowered the book value of their shares to almost zero. The only participant in the project that has not yet reflected the depreciation of its share is Gazprom, but, according to experts, the Russian company will be forced to do so. While the write-downs would result in a reduction in Gazprom’s net income, the company may decide not to include such non-cash items in its dividend calculation.

One of Gazprom’s foreign partners in the Nord Stream project, the Dutch Gasunie informed, which fully wrote off the book value of its share in the project (9%). “In the current foreign policy context, Gasunie does not predict the resumption of gas supplies via Nord Stream in the foreseeable future and, as a result, does not expect to receive new dividends. Thus, the value of Gasunie’s share in Nord Stream (the project operator) has decreased to zero at the end of 2022,” they explained. In the middle of last year, Gasunie already reduced the book value of its stake in Nord Stream from €508 million to €240 million.

In addition to Gasunie, shares in Nord Stream are also owned by the German Wintershall and E.On (15.5% each), as well as the French Engie. The remaining 51% belongs to Gazprom. In Nord Stream 2, Gazprom is the sole shareholder, but Wintershall, Uniper, Engie, OMV and Shell issued loans to the project of about €990 million each secured by its shares. Nord Stream 2, like Nord Stream 1, was seriously damaged as a result of a sabotage on September 16, 2022, during which significant sections of pipes were blown up at the bottom of the Baltic Sea in international waters near the Danish island of Bornholm.

Wintershall was the first to fully write off the cost of its stake in Nord Stream 1 (€529 million), as well as loans issued to Nord Stream 2. Two other foreign shareholders of Nord Stream 1 have not yet completely zeroed out their shares, but have reduced their valuation to a minimum. So, E.On at the beginning of November 2022 reduced its share five times, to €100 million. At the end of 2022, Engie estimated its share in Nord Stream-1 at €90 million against €574 million the year before. The French company also wrote off the cost of the Nord Stream 2 loan, as did Shell and Uniper.

Gazprom itself still maintains an estimate of its share in the projects. According to the latest available IFRS statements at the end of 2021, Gazprom estimated the book value of its stake in Nord Stream 1 at RUB 121.5 billion. ($1.65 billion at the exchange rate at that time). The book value of Nord Stream 2 is not reflected in the financial statements, since the project and has not been put into operation. However, Gazprom invested about €5 billion in it in the form of loans from the project company Nord Stream 2 AG.

Gazprom did not comment on Kommersant when they were going to reflect the depreciation of their shares in these projects in their financial statements.

The company already has a similar experience, although on a smaller scale: in 2015, Gazprom wrote off 56 billion rubles. losses due to the cancellation of the South Stream gas pipeline project to Europe. Later, the company partially restored the write-offs, as part of the constructed facilities and purchased materials were used for the construction of the Turkish Stream.

The write-offs should lead to a reduction in Gazprom’s net profit. However, independent expert Alexander Sobko recalls that, according to the company’s dividend policy, it can apply adjustments to the dividend base for non-cash write-offs of this type, and therefore the amount of payments to shareholders will not be affected by the depreciation of investments in Nord Stream.

Vyacheslav Mishchenko from the Center for Analysis of Strategy and Technologies for the Development of the Fuel and Energy Complex of the University. Gubkina considers the actions of foreign shareholders of Nord Stream, who do not expect the restoration of the gas pipeline, to be logical. For example, Germany is going to build several LNG receiving terminals using the infrastructure built to receive Nord Stream gas, he says. Taking into account the fact that even consultations on the restoration of the offshore part of the Nord Stream have not been started, there is no need to talk about the resumption of its work at least in the next two years, the expert believes.

Olga Mordyushenko