Will Spain face Russian ire for snubbing LUKOIL’s Repsol bid?

November 26, 2008

If Lithuania’s experience is anything to go by, Spain may regret its declaration that it would rather Russian oil company LUKOIL did not buy a major stake in its largest refiner, Repsol.


Russian oil company LUKOIL is in talks to buy around 30 percent of Repsol, one of Western Europe’s five largest non-government controlled oil companies by market value, sources close to the matter say. Analysts think the move could be a prelude to a full takeover, which would be the largest overseas acquisition by a Russian company.


Spain‘s Interior Minister Alfredo Perez Rubalcaba said on Tuesday he would prefer a different buyer. Rubalcaba didn’t say why LUKOIL was persona non grata in Madrid but analysts think the company’s nationality is the reason.


Europe relies on Russia for around a quarter of its gas and much of its oil. EU leaders fret about their reliance on Russia for energy supplies and recent moves by Russian companies, especially state-owned Gazprom, to buy up European energy infrastructure such as power stations and gas networks, have prompted Brussels to consider investment restrictions.


For LUKOIL, Madrid’s hostility is ominously familiar. In 2006, Lithuania opted to sell control of its Mazeikiu refinery to Poland’s PKN Orlen, rather than LUKOIL. Analysts said LUKOIL, and TNK-BP, another Russian oil major, lost out because the Lithuanian government feared a Russian buyer would give the Kremlin too much influence over the Baltic state’s economy.


 Shortly after the deal, Russia shut an oil pipeline to Mazeikiu, saying it needed to be repaired to avoid a leak. The pipeline has not restarted and Russian technical watchdog Rostekhnadzor said in September at least another 18 months would be needed for repairs.


 Lithuania said the shutdown is a politically motivated action linked to its decision not to select a Russian buyer.


Spain is not currently a major buyer of Russian crude or gas but a deal signed by Spanish utility Gas Natural and Russian state-controlled export monopoly Gazprom earlier this year might change this in the future. Also, Repsol has upstream interests in Russia, which it hopes to expand.


How will Moscow react to this latest snubbing of one of its largest oil companies?




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