Publication: Eurasia Daily Monitor Volume: 4 Issue: 215

OMV, Austria’s state-controlled energy company, plans to hand over to Russia’s Gazprom a 50% ownership stake in OMV’s Baumgarten gas storage and distribution center near Vienna. With this move, OMV threatens to torpedo the European Union-backed Nabucco pipeline project for Caspian gas. OMV, alongside the Austrian government, is a lead partner in that project, albeit a partner open to seduction by the Kremlin.

The Baumgarten junction is the designated terminus point for the planned Nabucco pipeline. The project envisages boosting storage capacity and pipeline links from Baumgarten to nearby European countries, for Azerbaijani gas in the first stage and other Caspian gas in the second stage. However, OMV’s apparent intention to share control of Baumgarten with Gazprom would ensure preemptive Russian use of those key installations, locking competitors out.

Ranked as the third-largest in EU territory, Baumgarten is operated by the Central European Gas Hub (CEGH), which is currently owned 100% by OMV’s gas unit (OMV Gas International). Moscow holds out the promise of turning it into the largest hub in the EU, if Gazprom can control its operations.

Gazprom vice president Alexander Medvedev and the company’s press office announced on November 13-14 that Gazprom would sign a corresponding agreement by mid-December, giving the Russian company an equity stake in Baumgarten (Interfax, Dow Jones, Die Presse, November 13, 14). On November 15 and 19, CEGH managing director Harald Wuestrich specified that the deal is for parity ownership and would be finalized within weeks (Platts Commodity News, November 16; Austrian Press Agency Economic News Service, November 19).

OMV seems sorely tempted to become a leading distributor of Russian-delivered gas in Europe. According to Wuestrich, the planned deal with Gazprom would boost throughput volumes at Baumgarten and via Austrian pipelines to other European countries. Such short-term thinking seems to trump the consideration of strategic consequences, which, in this case, would be nipping the Nabucco project in the bud. OMV hopes that Gazprom would turn Baumgarten into Europe’s largest gas hub, outstripping the Dutch hub at Zeebrugge.

Meanwhile, however, Gazprom has promised the Netherlands company Gasunie to boost future deliveries to there (see EDM, November 9). Gazprom does not have enough resources to deliver on all these projects, but is playing European companies and governments against each other with such promises.

Gazprom stands to achieve three major goals, if OMV goes ahead with the Baumgarten deal. One goal is to preempt access to the Central European hub and market niches in favor of Russian-delivered gas, instead of Azerbaijani gas and other Caspian gas delivered directly. Another goal is to leapfrog Romania and Bulgaria (both situated along the planned Nabucco route), so as to reinforce their dependence on Russian-delivered gas.

Beyond these immediate goals, Gazprom has recently unveiled a wider goal to create a Russian-controlled arrangement in Europe, ostensibly modeled on the New York Mercantile Exchange (NYMEX) (Global Insight Daily Analysis, November 15). Gazprom is tempting the Austrians with the prospect of Baumgarten becoming the main reference for the gas price on the European continent and creating a European gas exchange there, complete with a major financial and trading center, presumably in Vienna. “We are developing this system together with Gazprom,” Wuestrich announced.

All this would be conditional on Gazprom’s control of the hub’s operations and a massive expansion of delivery volumes there. While Gazprom’s control would be a certainty under the proposed deal, the Russian company’s capacity to boost deliveries as promised looks doubtful, even if Russia retains its monopoly on the transit of Central Asian gas.

Other OMV officials, appearing at international conferences and in media interviews, declare support for the Nabucco project. But the plan to share the Baumgarten hub with Gazprom could become a coup de grace to Nabucco.

OMV’s plan to develop Baumgarten as a joint project with Gazprom does not come as a surprise. A set of agreements of intent was signed during Russian President Vladimir Putin’s May 23-24 visit to Austria. At that point, Russia targeted Austria not only as a market but also as a base for Gazprom’s continuing expansion within EU territory. Under those agreements of intent, Gazprom would build with OMV a Central European Gas Hub and Gas Transit Management Center, the largest in continental Europe, at Baumgarten. In addition, Gazprom and OMV would build gas-storage sites near Baumgarten, also as joint ventures (see EDM, May 29). During that visit, Putin and top Gazprom executives held a long meeting with Austrian government and OMV leaders that was not reported by the media.

OMV’s deal with Gazprom over Baumgarten casts even deeper doubt on the merits of OMV’s takeover attempt against the Hungarian MOL energy company. MOL has said all along that it defends itself against possible control by Gazprom lurking behind OMV’s bid. MOL is also a partner in the Nabucco project, a top priority of the European Union, which OMV’s move threatens to sink. Ironically, OMV hopes for EU support in the hostile bid against MOL (see EDM, October 2, 30, 31).