OMV LOOKS TO RUSSIAN GAS FOR NABUCCO

C O N F I D E N T I A L VIENNA 002874 SIPDIS SIPDIS E.O. 12958: DECL: 11/28/2017 TAGS: ENRG ECON EPET AU SUBJECT: OMV LOOKS TO RUSSIAN GAS FOR NABUCCO REF: VIENNA 2851 Classified By: Econ/Pol Counselor Dean Yap for reasons 1.4 (b) and (d) ¶1. (C) In a recent meeting with Emboffs, Reinhard Mitschek, OMV's Managing Director for Nabucco Gas Pipeline International, expressed concern that Azerbaijan could not provide enough gas by itself for Nabucco's initial phase in ¶2012. Nabucco would therefore turn to Russia to supply half of the initial start-up volume of 8-10 bcm. Russian gas could access Nabucco either via Bluestream or via existing pipelines through Ukraine, Romania, and Bulgaria. ¶2. (C) Mitschek implied that Nabucco's decision to turn to Russian gas was based on its unwillingness to use Iranian gas for the near-term. According to Mitschek, OMV "cannot isolate both Russia and Iran" from the Nabucco project, which, in his view, would drive Moscow and Tehran into an anti-Nabucco alliance. Moreover, both Russia and Iran would then intensify their commercial ties in the energy sector with Asia. ¶3. (C) On Turkey, Mitschek said that OMV was searching for incentives to elicit better cooperation from Ankara for the Nabucco project. Turkey, according to Mitschek, lacked adequate gas storage. OMV could help Turkey by offering a virtual storage scheme: OMV would "store" Turkish gas in Europe, and when Turkish demand rose, Nabucco would divert gas headed to Europe to the Turkish market. OMV would then draw down Turkey's gas storage by the corresponding amount. This would help Turkey more easily cover its needs in times of unexpectedly high demand. According to Mitschek, Ukraine has also expressed an interest in a similar arrangement. ¶4. (C) Mitschek said that Nabucco was still pursuing exemptions with the European Commission, as well as with the national regulators along the pipeline's route. One exemption would allow for an unregulated tariff schedule, thus protecting the project against capricious rate increases from national regulators. A second exemption would reserve 50% of capacity for the project's shareholders or companies associated with the shareholders. Mitschek stressed that it would be vital to receive the exemptions before holding an open season in spring 2008. Mitschek expressed confidence that Nabucco would receive the exemptions, adding that the Austrian energy regulator had already approved its exemption, with Bucharest, Budapest, and Sofia sending favorable signals. Comment -------------- ¶5. (C) Mitschek was very clear that the initial phase of Nabucco would include some Russian gas. OMV has so far sold Nabucco to the Commission and EU Member States as a project to diversify Europe's gas imports. However, what is ultimately important for OMV is to convince its shareholders, including the soon to be announced sixth partner, that the project has enough gas. OMV CEO Ruttenstorfer, in a November 14 meeting with the Ambassador, also echoed Mitschek's doubts about sufficient quantities of Azeri gas for the 2012 start-up of Nabucco. In our opinion, OMV's primary objective is to bring as much gas as possible to Europe from as many different sources as possible. Iran is apparently politically impossible at the moment (reftel),but Russia will do, in OMV's view, until additional Azeri and Transcaspian volumes became available. End Summary. Kilner