Wednesday, May 27, 2009

By Oliver Klaus

Of DOW JONES NEWSWIRES

ABU DHABI (Dow Jones)--E.On Ruhrgas AG, the natural gas unit of German utility E.ON AG (EOAN.XE), will offer stakes in European assets in return for access to resources in the Middle East and North Africa, a top company official said.

"We're ready to consider proposals in return, of course, for participation in LNG and E&P projects," Jochen Weise, a member of E.On Ruhrgas's management board, told Dow Jones Newswires in an interview in Abu Dhabi this week.

"It has to be in the form of cooperation along the whole value chain," he said.

German gas companies such as E.On Ruhrgas and RWE Dea are targeting resources in hydrocarbon-rich countries in the Middle East and North Africa to diversify their supply base and secure long-term energy resources to meet demand that's expected to grow in Europe's largest economy.

E.On Ruhrgas, which manages the European natural gas business for its parent E.On, last year supplied about 59 billion cubic meters of gas -- equivalent to about 70% of Germany's total gas consumption in 2008 -- to its European customers.

The company in 2008 accounted for about 55% of E.On's total gas supplies to Europe, where it operates a 11,500-kilometer gas pipeline system and 15 underground storage facilities. Its sales stood at EUR27.4 billion.

Essen-based Ruhrgas presently sources about half its gas supplies from Russia and Norway. Much of its future supplies are expected to come from the import of LNG, gas cooled so it becomes liquid and can be transported over long distances on special vessels.

SUPPLY STRATEGY

E.On Ruhrgas estimates that LNG's share among all gas supplies to the 27 European Union countries, the EU27, is expected to rise to 18% by 2020 from 10% now.

"Now that sources of supply in Germany and the Netherlands will significantly diminish in coming years, it is important to go down new routes and deal with LNG," Weise said.

As part of this strategy, E.On Ruhrgas is now seeking greater involvement in the Middle East and North Africa. While the company is a relative newcomer to the region it hopes its strong position in Europe's vast downstream market will go some way to secure deals for gas exploration and production, or E&P, and LNG projects, or long-term supply agreements.

"We're in talks with all major producers in North Africa and the Middle East," Weise said.

E.On Ruhrgas's foray into the Middle East and North Africa area comes at a critical time for the LNG industry, with global energy demand slowing as major consuming countries have fallen into recession and LNG production capacity is rapidly building up, in particular in Qatar.

The Persian Gulf state is set to become the world's largest LNG exporter by far with a total capacity of more than 77 million tons a year by the end of the decade.

CYCLICAL BUSINESS

"Our business is cyclical and we're now in a phase in which availability of supplies over the next three to five years is rather sufficient. However, as a result, there won't be any investments now, which subsequently will lead to shortages thereafter," Weise said.

To support its plans, Ruhrgas recently farmed into Egypt's offshore Northwest Damietta concession, acquiring a 29% interest from Royal Dutch Shell Plc's (RDSA) Egypt unit.

Last year, the company was awarded an exploration license in Algeria where several wells are due to be drilled in coming years. In addition, representative offices have been opened in Libya, Qatar and Dubai.

In West Africa, the company has signed a preliminary agreement to participate in an LNG consortium with Sonagas of Equatorial Guinea and other partners. E.ON Ruhrgas is also one of 15 companies prequalified to bid for a stake in Nigeria's gas masterplan. It also signed two preliminary deals with Nigerian National Petroleum Corp.

"Our upstream strategy is built on a clear focus and we have three regions that are relevant for us: the North Sea, Russia and North Africa. Beyond these, upstream will cover selected, integrated LNG and E&P projects in West Africa and the Middle East," Weise said.

-By Oliver Klaus, Dow Jones Newswires, +9714 364 4962 Oliver.Klaus@dowjones.com

Copyright (c) 2009 Dow Jones & Co.

(END) Dow Jones Newswires

27-05-09 1126GMT