Austria’s OMV To Share Key Terminal With Gazprom

On November 5 Austria’s OMV energy company advanced toward a final agreement with Russia’s Gazprom to share the Baumgarten gas terminal near Vienna. That terminal, however, is the designated end point and regional distribution center for the Western-backed Nabucco gas transport project. Sharing Baumgarten with Gazprom risks pulling the rug from under the Nabucco project.

It is OMV’s third move to that effect. Earlier this year it openly recommended sharing the capacity of the Nabucco pipeline with Gazprom. After that, OMV agreed to join the rival project, Gazprom’s South Stream (an agreement yet to be finalized). These moves must have had support from the Austrian government, which is the single largest shareholder in OMV and politically close to the company’s management. Ironically, it is OMV that initiated the Nabucco project years ago, and it remains the lead company in the Nabucco consortium.

Under the agreement of intent just signed, OMV will cooperate with Gazprom to develop the Central European Gas Hub (CEGH) at Baumgarten into a leading hub platform in continental Europe. They will also establish a gas exchange there for trading on a spot market and futures market for gas products. CEGH is a 100-percent-owned subsidiary of OMV at present. Upon completion of this transaction in 2009, however, the ownership structure will change as follows: OMV 30 percent, the Vienna Stock Exchange (Wiener Boerse) 20 percent, Gazprom Germania 30 percent, and Centrex Europe Energy & Gas 20 percent. The transaction is subject to approval by the European Union’s regulatory and competition authorities (OMV press release, November 5; Wirtschaftsblatt, Der Standard, November 6).

Gazprom Germania and Centrex are fully-controlled subsidiaries of Russia’s Gazprom, which thus obtains 50 percent ownership of the terminal designated for the Nabucco project.

OMV would like to draw a distinguishing line between the Baumgarten trading platform on one hand and the physical infrastructure of the terminal on the other. This would imply that Gazprom would share ownership of the former but not the latter. Even so, Gazprom sharing in the marketing of Nabucco gas (if and when it materializes) would seem to make nonsense of that project. But the distinction between the “trading hub” and the “physical hub” looks especially unconvincing, in light of OMV’s recent talks with Gazprom on building underground gas storage sites around Baumgarten, which would greatly expand OMV’s existing storage capacity.

If the storage expansion project goes ahead, OMV may or may not retain full ownership of its existing site, depending on agreements with Gazprom. New storage sites to be built together around Baumgarten for Gazprom gas, however, are another matter. It would be inconsistent with Gazprom’s practices to allow full ownership by the recipient country of new, jointly-built storage sites for additional volumes of Gazprom-delivered gas. In such situations, Gazprom insists on joint ownership of the storage sites.

OMV and others in Austria entertain visions of turning Baumgarten into the leading gas transportation hub and trading hub in continental Europe. Gazprom has enticed Vienna with the prospect of expanding Baumgarten, from the third-largest to the largest such hub. Piggybacking on Gazprom to pursue that ambition, however, risks turning OMV and the Nabucco project into hostages to Gazprom, both in the business and the political arenas. That ambition, moreover, would seem to rest on overestimating Gazprom’s export potential in the years ahead.

Gazprom has tempted a number of European countries with promises to turn them into “hubs” for the transportation, storage, and marketing of Russian-delivered gas. Although Gazprom can not conceivably deliver on all these promises, some countries and companies seem inclined to turn over parts of their infrastructure to Gazprom in anticipation of highly uncertain gas volumes. OMV is a prime object of Gazprom’s tactics in this regard (see EDM, January 29, June 10).

Austria has long been receiving massive volumes of gas from Russia via Ukraine and Slovakia for internal consumption as well as for transit to Germany, Italy, and other countries as far afield as France. According to company data, OMV annually transports approximately 64 billion cubic meters of gas through Austria, including almost 18 billion cubic meters traded directly at Baumgarten in 2007 (OMV press release, November 5).

The Baumgarten terminal handles those volumes coming from the east. It is also designated as the final reception point for Nabucco gas that would enter from the south. Meanwhile, however, Gazprom and OMV have also been in talks about a partnership for the South Stream project, Nabucco’s rival, also slated to enter Austria from the south. Under a Russian-Austrian intergovernmental agreement that was recently under discussion, OMV and Gazprom would form a joint company that would operate the planned South Stream pipeline’s section to be built on Austrian territory.

The Austrian company and government might well assume that the country’s key location would make it a highly interesting capture for Gazprom and facilitate a separate deal with it. In that case they would put Nabucco and the EU’s overall diversification goals at risk by partnering with the Russian monopoly and sharing the Austrian infrastructure with Gazprom.