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James Burgess

James Burgess

James Burgess studied Business Management at the University of Nottingham. He has worked in property development, chartered surveying, marketing, law, and accounts. He has also…

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Russian Billionaire to Buy Distressed German Power Giant

German power giant RWE has announced plans to sell its oil and gas unit Dea to Russian billionaire Mikhail Fridman’s L1 Energy in a $7.1 billion deal, as European power companies struggle to compete with European clean energy schemes.

RWE Dea is one of Germany's major oil and gas exploration and production companies, with international activities and a gas storage business in Germany, and this deal would be the first for L1 Energy.

The transaction requires final approval from RWE’s supervisory board and regulators in several countries.

According to RWE, Dea pumps oil and gas in the UK, Germany and Norway, but is no longer of strategic importance for the company.

RWE operates in Europe, the Caspian Sea region and North Africa, including Egypt and Libya.

L1 Energy was set up by Fridman and co-investor German Khan, and the plan would be to invest proceeds from the sale of their shares in the Moscow-based oil venture TNK-BP. Fridman has attracted several high-profile energy executives to L1’s advisory board, including former BP chief John Browne.

Earlier this month, RWE reported its first full-year loss since 1949, with reduced power prices leading to billions in write-downs. Now struggling with around $40 billion in debt, RWE is seeking to divest some of its assets and renegotiate supply agreements with Russian oil giant Gazprom.

The lower power prices have led to nearly 5 billion euros in write-downs for RWE. Since 2008, the company has lost more than 70% of its share value.

In August 2013, RWE announced it would close 3.1GW of fossil fuelled power stations across Europe due to the booming renewable energy market, which has made those power stations unprofitable to run.

Also last summer, RWE closed its 750MW Tilbury B Power plant in Essex, UK, blaming the British government’s energy efficiency schemes and high network charges for reduced operating profits. At the time, RWE said it would be forced to reduce its 26 energy sites in the UK to 10 over the next five years.

Wind and solar energy producers in Europe have benefitted from priority access to the electricity grid and prices guaranteed well above the market and despite fluctuations in demand. The end result is that higher taxes and higher prices for conventional energy foot the bill for solar and wind benefits. This has crippled the large-scale power-generation industry for gas and thermal.

Earlier this month, France’s GDF Suez reported a net loss of over $13 billion for 2013 and said it may move to cut dividends.  

The French energy giant took a $20 billion write down last year after slumping prices reduced the value of its gas storage and gas power plants in Europe, but the company’s stocks still managed a 6% rise.

By James Burgess of Oilprice.com

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