The potential here is just stunning for Dow (DOW). Russian natural gas monopoly OAO Gazprom and Dow signed a memorandum of understanding that outlines potential cooperation on projects in Russia and Germany. Gazprom said the companies will consider creating a joint venture based on Dow's new petrochemical facilities in Germany and cooperating in refining gas from Russia's Yamalo-Nemets autonomous district, and study other possibilities.
CEO Andrew Liveris has long lamented high natural gas prices and the US policy (or lack thereof) has lead to the expedited JV strategy at Dow over the past two years.Some backround here is now necessary. In late October Gazprom announced an agreement with Statoilhydro (NYSE:STO). From the Release:
The Shtokman gas and condensate field is located in the central part of the Russian sector of the Barents Sea offshore. >Approved by the RF Nature Ministry’s State Commission for Mineral Resources in January 2006, Shtokman’s C1+C2 reserves make up 3.7 tcm of gas and over 31 mln t of gas condensate. In October 2006, the Gazprom Management Committee decided that pipeline gas deliveries from the Shtokman field to the European market would take priority over LNG shipments. Shtokman was identified as the resource base for Russian gas export to Europe via the Nord Stream Gas pipeline.A massive deal, but what to do with it all?
Phase 1 stipulates production of 23.7 bcm of natural gas per annum, gas and LNG supplies via the gas pipeline will start in 2013 and 2014, respectively.
Fast forward To Dow and Gazprom:
The potential JV would give Gazprom access to new petrochemical facilities set up by Dow in Germany. In return, Dow would refine gas at Gazprom's fields in the Yamalo-Nemets region in the north of Russia. Essentially Dow would have the inside track in building the Russian petrochemical industry. This follows similar deals for Dow in both Saudi Arabia and China.
See where this is going?