Eon/Nord Stream 1: writedown shows pipeline is no lifeline

Gas pipelines were once safe infrastructural investments. That was before Russia invaded Ukraine, throwing the future of Nord Stream 1 into doubt. German utility Eon has written down the value of its indirect 15.5 per cent stake by three-fifths. That implies a €4.5bn plunge in the value of the whole asset to €3.2bn.

The move means odds are lengthening against a return to Europe’s prewar reliance on Russian energy. Just as well. Russia has been trying to blackmail the west using the pipeline, which is controlled by Gazprom. It should only get one chance to do that.

Russian gas and crude oil pipelines have been Europe’s energy lifeline. Supply squeezes are now testing European political relations. The southern branch of the Druzhba oil transport system, which passes through Ukraine, recently stopped pumping. Russia refuses to pay transit fees. That causes serious problems for Hungary. National oil company MOL has decided to pay Ukraine on behalf of Russia.

Russia has done the most damage to Europe with gas. German gas storage is slightly more than 72 per cent full this week, according to the Federal Network Agency. With Nord Stream 1 running at just a fifth of capacity, the watchdog fears Germany will miss a target of filling three-quarters of capacity by September 1.

Eon’s impairment slashes the value of its stake, held via its pension fund, by well over half to €500mn. It is not the only one giving up hope on Nord Stream 1. Its cut roughly aligns with that of fellow minority shareholder Engie. The French energy group, which holds 9 per cent, made a slightly gentler impairment back in May. As yet, Nord Stream 1’s other German shareholder, Wintershall Dea, which also has 15.5 per cent, has not adjusted its own valuation.

The German utility picked a good time to take this hit to its pension fund’s investments. Rising interest rates have reduced pension liabilities by more than €3.7bn.

Most of us know that a minority stake in a private company rarely amounts to a hill of beans. The controlling shareholder calls the shots when it matters.

In the case of state-owned Gazprom, that chain of command extends to the Kremlin. Its enthusiasm for consensual decision-making is hardly legendary. For German utilities, writing down stakes in Russian energy assets therefore represents the end of a delusion, rather than of a beautiful friendship.

The Lex team is interested in hearing more from readers. Please tell us what you think of Nord Stream 1 in the comments section below.