Publication: Eurasia Daily Monitor Volume: 4 Issue: 104

Russian President Vladimir Putin’s May 23-24 visit to Austria laid the ground for that country’s integration into Gazprom’s rapidly expanding network of dependencies. By the same token, it dealt a coup de grace to the Nabucco project for alternative gas supplies to Austria and Europe.

Under agreements signed during Putin’s visit, Gazprom is enlarging its market share in Austria and gaining direct access to end consumers. Moreover, it plans to use Austria as a transit corridor to capture European Union markets farther afield, defeating the EU’s declared goal of supply diversification, to which Nabucco was a key. Ironically, it was Austria’s energy champion OMV that initiated the EU-backed Nabucco project. Moreover, Russian deliveries to and via Austria would include Central Asian gas that Nabucco could not access.

The Gazprom-created, Austrian-registered trading companies GWH and CentrexEurope Energy and Gas will from 2008 onward deliver gas directly to consumers in Austria’s Lands of Salzburg, Carynthia, and Styria. During his visit, Putin described this arrangement as the first of its type in a EU member country. Meanwhile, those two companies’ ownership structures are convoluted and not fully clear. GWH’s stakeholders are said to be Gazprom with 50%, CentrexEurope with 25%, and OMV with another 25%. CentrexEurope itself is an offshoot of Gazprom’s subsidiary Gazexport.

Austria’s OMV (the country’s largest business entity) as well as smaller companies currently buy Russian gas at $240 per 1,000 cubic meters at the border. Austrian end consumers pay retail rates of $720 and higher per 1,000 cubic meters. “This is not our problem, you must understand,” Putin commented in Vienna, obliquely blaming the retailers for that hefty markup. However, Gazprom and its direct affiliates will from now on take a large chunk of that profit.

Austria consumes some 10 billion cubic meters of gas annually, of which Russia delivers approximately 70%. Gazprom is scheduled to deliver 6.8 billion cubic meters in 2007 and 9 billion cubic meters by 2009.

However, Gazprom and the Kremlin have greatly raised their ambitions regarding Austria almost overnight, targeting the country not only as a market but also as a base for continuing expansion within EU territory. This sudden change is undoubtedly connected with Putin’s May 9-13 agreements with Central Asian presidents, cementing Russia’s monopoly on Central Asian gas and envisaging a substantial long-term expansion in deliveries of that gas to Russia.

In Vienna, Putin and Gazprom president Alexei Miller defined Austria as a “major transit country” in terms of Gazprom’s long-term plans in Europe. Gazprom intends to “expand Austria’s gas transit capacity in order to meet Europe’s growing need for Russian gas,” Miller announced. Gazprom and OMV signed agreements of intent along those lines during Putin’s visit.

Under those documents, Gazprom plans to build with OMV a Central European Gas Hub and Gas Transit Management Center, the largest in continental Europe, at Baumgarten near Vienna. In addition, Gazprom and OMV would build gas-storage sites near Baumgarten and also in “neighboring countries” (that is, Hungary and/or Slovakia). The existing Baumgarten distribution junction is 100% OMV-owned. The expanded Baumgarten Hub and related storage system would, however, be developed as Gazprom-OMV joint ventures. This agreement of intent severely undermines the Nabucco project, as Baumgarten was that project’s terminus point and its distribution center for non-Russian gas.

Putin’s visit also occasioned the commissioning of the first stage of the Haidach gas storage site near Salzburg, on the Austria-Germany border. The storage site is a joint venture of Gazprom, Wingas — itself a joint venture of Germany’s Wintershall with Gazprom — and Germany’s RAG energy corporation, a Gazprom partner in the Ruhr industrial region. The Haidach storage site (with an annual capacity of 2.4 billion cubic meters of active gas when completed) and pipeline connection to Germany are to handle Russian gas deliveries to Germany via Austria.

Austrian officials have changed their discourse on these Russian-driven gas projects as quickly as Russians raised their transit ambitions in Austria. For example, Chancellor Alfred Gusenbauer and OMV chief Wolfgang Ruttenstorfer are now extolling Gazprom’s and Russia’s reliability as energy suppliers and are hailing the prospect of greater volumes of Russian gas reaching Europe through Austria.

However, Gusenbauer had told Reuters as recently as April, “If we really want diversification of energy supplies, Nabucco is the only way” (cited by Reuters, May 23). OMV itself had planned the Nabucco pipeline to bypass Russia, led the five-party consortium for the project, and searched for gas supplies in the Caspian region and the Middle East, down to the last moment. Economics Minister Martin Bartenstein, who strongly promoted Nabucco in 2006 during Austria’s presidency of the European Union, now worked with Gazprom’s Miller during Putin’s visit on the agreements of intent that negate the Nabucco project’s strategic rationale.

The sudden change of tone practically removes that strategic rationale — namely, supply diversification away from overdependence on Russia. That rationale remains, however, as valid as previously if not more so, and it seems unlikely that the officials are disowning it. More likely, their praise for such an undesirable outcome is attributable to Russia’s latest, decisive gains against feeble and disorganized Western opposition in the contest for Central Asia’s energy resources.