OMV warns EU laws could give Gazprom role in Nabucco pipeline

By bne IntelliNews April 4, 2008

Derek Brower in London -

EU energy competition rules could allow Gazprom to ship its gas through the Nabucco pipeline - a project that the EU had hoped would help diversify the region's gas imports away from Russia.

In an interview with bne, Werner Auli, head of OMV's gas division, said the consortium building Nabucco hopes to gain an exemption to EU rules stipulating that third parties be allowed access to capacity on energy infrastructure in the union. The consortium would seek approval to keep 50% of the line's capacity for its six partners - OMV, Botas, Bulgargaz, Mol, RWE and Transgaz - with the remainder to be auctioned to other gas shippers.

The EU's energy commissioner, Andris Piebalgs, has called Nabucco a "strategic priority" in the bloc's ambition to diversify its sources of gas and has made little secret of the hope that the pipeline will reduce the continent's dependence on Gazprom's gas. Yet assuming Gazprom goes ahead with its South Stream gas pipeline, any capacity on Nabucco would then give the Russian company two new export routes into Europe.

However, according to Auli, it's not the Austrian company that's seeking Gazprom's participation in Nabucco, but the EU's own competition laws that would allow the Russian company access to the infrastructure. "In this open-season process, if Gazprom wants to buy capacity it is allowed to," Auli said. "It's not planned that Nabucco is filled with Gazprom gas, but they have the same right as any other company. If they book so much capacity, we will enlarge the pipeline - build two pipelines instead of one." Nabucco could be expanded to 50bn cubic metres a year (cm/y) if necessary, he said, although OMV had had "no discussions" to include Gazprom as a shareholder in the pipeline.

OMV's latest start-up target darte for Nabucco is 2013 for phase one, with capacity of 10bn-12bn cm/y, and 2018 for a second phase, which should have capacity for 31bn cm/y. With the exception of supplies from the Shah Deniz field in Azerbaijan, however, the partners have yet to secure the supplies of gas to fill the pipeline. Auli said that Iraq, Central Asia and, eventually, Iranian gas are potential sources of supply. A proposal to compress natural gas in Turkmenistan or Kazakhstan and ship it across the Caspian Sea to Baku could allow imports from that region, suggested Auli. That plan would also make Russia's opposition to development of a subsea gas pipeline across the Caspian irrelevant. But Auli expects that once Nabucco is on stream, exploration in Central Asia and new infrastructure across the Caspian will be more likely. Meanwhile the front-end engineering process, now underway, will give a clearer indication of the pipeline's cost, conservatively estimated at €5bn at present.

Friend and foe

OMV's close relationship with Gazprom has led to speculation that it might seek broader cooperation with the Russian company. Auli said that Gazprom had invited OMV to become a partner in its South Stream project "half a year ago." He also said he hoped OMV's Baumgarten storage facility would become the terminal for gas from both Nabucco and South Stream. But he played down OMV's joint venture with Gazprom that gives it a 50% stake in the trading platform at Baumgarten: "we have no partnership in the [storage] assets [with Gazprom]."

Gazprom's supply of gas to Baumgarten and its stake in the platform brings liquidity to the hub, said Auli, who expects it to become the biggest in the continent. The hub now has 66 registered traders and traded 17.75bn cm last year. OMV wants to increase the volume to 2bn-3bn cm/month by 2010. The platform will also switch from being an over-the-counter market to a gas exchange facility with central clearing by 2010, he said.

Yet despite the cooperation with Gazprom at Baumgarten, the Russian company is still seen as a threat. OMV's chief executive, Wolfgang Ruttenstorfer, told bne last year that the bid to buy Hungarian rival Mol was essentially a defensive strategy to keep OMV ahead of further consolidation in Central and Eastern Europe.

Gazprom is considered to be one predator eyeing assets in the sector. "They have more or less the same strategy as we have," Auli told bne. "Our strategy is direct entry to the market from the exploration and production side directly to the market. Gazprom is doing the same."

"Gazprom on the one hand will be a competitor, on the other hand it will be a partner," he added.

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