Germany mulls nationalization of Rosneft Deutschland: report

Germany is considering nationalizing Rosneft Deutschland, a subsidiary of Russia's Rosneft, according to local media reports.

Formal discussions between Rosneft and The Federal Ministry for Economic Affairs and Energy were said to have taken place Jan. 5, in what would be a preparatory step for an expropriation of the Russian energy major's German subsidiary, Handelsblatt and other German media have said, citing government sources close to the discussions.

Rosneft Deutschland refining assets have become a point of contention since they were first placed under government trusteeship in September 2022, after the Russia-Ukraine war stoked energy security concerns.

Under the current arrangement, the subsidiary still legally holds stakes in Germany's Schwedt, Bayernoil, and Karlsruhe (MiRO) refineries, with shares of 54.17%, 29% and 24% respectively.

Since 2022, the trusteeship has been extended twice, with the fast-approaching March 10 deadline sparking speculation around the future of the group's status in Germany.

Previous extensions of trust administration, agreed in six-month blocks, were criticized for providing an unsuitable long-term solution to tensions with Russia, while providing an uncertain investment landscape for the country's energy infrastructure.

Any move to expropriate Rosneft would mark a tougher stance against the refiner after fraught relations in the wake of the war. Rosneft Deutschland lost a case against the trusteeship in Germany's constitutional court in 2023, which it continues to appeal, and would likely resist a new extension, sources have speculated.

Lingering concerns around German energy supply have added to calls for decisive action by the German government, with the nationalization of Russian energy giant Gazprom's German subsidiary providing precedent in late 2022.

The German Federal Government and Rosneft were not immediately available for comment when contacted by S&P Global, while no firm decisions have been taken.

Germany's 220,000 b/d Schwedt refinery, responsible for 90% of fuel supply to the Berlin-Brandenburg area, has been a particular focus of discussions. The plant's reliance on Russian crude imports through the Druzhba pipeline left it heavily exposed to Russian supply, and the refinery suffered utilization reductions after supplies were cut off.

Although small volumes of Kazakh imports have continued through the pipeline and seaborne imports through Rostock and Gdansk have provided alternatives, many have looked to new investment in solutions such a Rostock-Schwedt pipeline expansion for greater security.

As the largest employer in the Schwedt region, the refinery's future is also a sensitive social issue in the East of Germany and its SPD leadership, which forms part of the coalition government.

In the long term, sources have also flagged the need for significant investment in energy transition solutions at Schwedt, already slated to convert into a "hydrogen hub" producing e-fuels by 2045.

Recent M&A activity within Germany has provided signs of potential buyers for Rosneft refining assets, according to Katrin Andrä, partner and co-head of the energy and infrastructure practice group at NOERR, a German law firm.

Having recently worked on the acquisition of ExxonMobil's 25% stake in MiRO by Alcmene, Andrä highlighted the commodity trading unit of Estonia's Liwathon Group as an interested party, while the UKs Prax recently stepped into the German refining sector with plans to acquire Shell's 37.5% stake in Schwedt.

"Alcmene publicly announced its interest in the Rosneft Deutschland holdings, the group has been strongly supported by the UK government in this effort, and has a strong working relationship with the highly professional German ministries," said Andrä, adding two local companies, Enertrag and Verbio are also interested strategically considering the transformation Schwedt.

Representatives from PCK Schwedt were not available for comment on the discussions, while Bayernoil and MiRO did not respond to previous requests for comment.