Identifier
Created
Classification
Origin
07VIENNA728
2007-03-22 10:18:00
CONFIDENTIAL
Embassy Vienna
Cable title:  

NABUCCO PIPELINE: OMV STILL BULLISH ON 2012 STARTUP

Tags:  ENRG EPET EINV AU 
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VZCZCXRO3319
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVI #0728/01 0811018
ZNY CCCCC ZZH
P 221018Z MAR 07 ZDK PER MULTI SVC
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 6705
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 03 VIENNA 000728 

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/22/2017
TAGS: ENRG EPET EINV AU
SUBJECT: NABUCCO PIPELINE: OMV STILL BULLISH ON 2012 STARTUP

REF: VIENNA 701

VIENNA 00000728 001.3 OF 003


Classified By: Economic-Political Counselor Gregory E. Phillips for
reasons 1.4 (b) and (d)

Summary
-------

C O N F I D E N T I A L SECTION 01 OF 03 VIENNA 000728

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/22/2017
TAGS: ENRG EPET EINV AU
SUBJECT: NABUCCO PIPELINE: OMV STILL BULLISH ON 2012 STARTUP

REF: VIENNA 701

VIENNA 00000728 001.3 OF 003


Classified By: Economic-Political Counselor Gregory E. Phillips for
reasons 1.4 (b) and (d)

Summary
--------------


1. (C) During a March 20 meeting with EconUnit Chief, the
Managing Director of the Nabucco Pipeline consortium,
Reinhard Mitschek, said that the project remains on track to
begin operations in 2012. Nabucco is still looking to take
on a major European gas company to help finance the project.
Requests for exemptions from the EU's Internal Gas Market
Directive are with national regulators. Azeri gas is key for
Nabucco's startup phase. OMV will meet with Azeri officials,
including President Aliev, in mid-April, and will consider
asking for a 10 billion cubic meter (bcm) commitment to
Nabucco in exchange for a 10% stake in the project. Nabucco
would like to include Transcaspian gas in the Nabucco mix in
the long-term. In the short-term, without sufficient Azeri
supplies, Nabucco would consider less desirable sources,
including Russia or Iran. OMV does not oppose Turkey's
efforts to establish a gas hub, as long as it does not slow
progress on Nabucco. Mitschek brushed aside last week's news
headlines that "Hungary had chosen Gazprom over Europe,"
adding that a "South Stream" pipeline would face many
obstacles, including Romanian and Bulgarian opposition.
Mitschek opined that Russia is angling to participate in
Nabucco as a way to dampen Europe's interest to access Kazakh
and Turkmen gas, thus condemning Transcaspian gas to export
only to Russia. According to Mitschek, OMV does not oppose
Russian gas in Nabucco, but it definitely will not allow
Russian control of the project. End Summary.


OMV: Nabucco Timeline Still On Track
--------------


2. (C) During a March 20 meeting with EconUnit Chief,
Reinhard Mitschek, OMV's Managing Director of the Nabucco
Pipeline consortium, said he remains confident that the
pipeline will be operational by 2012. In spring 2007,
engineers will develop a front-end design and specifications
for the project. Required environmental and social impact
assessments will occur later in 2007, and in 2009

construction will commence.


3. (C) Nabucco is presently lining up contracts with
companies to produce the unusually thick (56 inch diameter)
pipe. Mitschek noted that 6-7 potential shippers in Europe
have already signed Letters of Intent with Nabucco, which
will come into effect as soon as Nabucco reaches a final
investment decision in late 2007 or early 2008. Mitschek
admitted that Nabucco is still seeking financing from a major
European gas company. Government export/investment banks in
Austria, Germany, Italy, France, and Japan, as well a the
EBRD, have apparently agreed to provide financing guarantees
for Nabucco.


Nabucco Seeking Exemptions from EU Directive
--------------


4. (C) Mitschek said that the consortium is seeking two
important exemptions from the European Commission: a
long-term unregulated tariff to protect against national
regulators capriciously reducing tariffs; and reserving 50%
of initial capacity for operators participating in Nabucco.
Mitschek stressed that both exemptions are important to
attract additional financing. Mitschek said Nabucco has
already filed requests for an unregulated tariff regime with
regulators in Austria, Hungary, Romania, Bulgaria, and
Turkey. Mitschek said the EC would make the final decision
on exemptions, once it had received approvals from national
regulators.


Lining Up Suppliers
--------------


5. (C) Mitschek said Nabucco had identified Azerbaijan,
Egypt, and Iraq as the most suitable suppliers for the
initial stages of Nabucco. Russia, via Blue Stream, could
also contribute 5-6 billion cubic meters (bcm) in an initial
phase. However, Mitschek stressed that Nabucco did not want
any one supplier to become dominant. Mitschek welcomed
continued support for Nabucco in Brussels and Washington, but
noted that recent discussions with USG officials on the
margins of the February IEA conference indicated the USG is
supporting the Turkey-Greece Interconnector (TGI) over
Nabucco. Mitschek underlined that "Nabucco will happen. The
only question is when -- by 2012 or by 2015."

VIENNA 00000728 002.3 OF 003




Without Azeri Gas, Will Nabucco Turn to Russia or Iran?
-------------- --------------


6. (C) Echoing comments by OMV CEO Wolfgang Ruttenstorfer
(reftel),Mitschek underscored that Azerbaijan remains the
key for Nabucco's successful startup. Mitschek said OMV
reckons that Shah Deniz II can produce 10-16 bcm per annum.
However, Nabucco is keenly aware that it is competing with
TGI for this gas. An OMV delegation will visit Baku in
mid-April. Mitschek said the consortium is considering
offering the Azeri state company SOCAR a 10% share in the
Nabucco project in return for 10 bcm for the pipeline.
Mitschek added that, without Azeri gas, Nabucco would have to
look for supplies from less preferred sources, such as Russia
or Iran. According to Mitschek, Kazakhstan and Turkmen gas
are also potential longer-term suppliers, if there is
progress with a Transcaspian Pipeline (TCP). OMV, through
its majority holding in Romania's Petrom, has an office in
Ashgabat and rights to Kazakh gas fields.


OMV: Turkey Needs Nabucco to Realize Its Goals
-------------- -


7. (C) Regarding Turkey, Mitschek said Ankara has become
more and more interested in Nabucco, as it looks to meet its
growing gas demand. According to Mitschek, Turkey wants to
establish an energy hub, so it can act as a gas wholesaler.
Mitschek maintained that OMV does not oppose something along
these lines, as long as Turkey's "energy hub project" does
not slow down Nabucco. Turkey, in Mitschek's view,
recognizes that they need the Nabucco infrastructure and
financing to realize its goals. Mitschek noted that OMV is
uncertain where the real source of decision-making on energy
questions in Ankara is: the state planning organization,
Minister of Economy Guller, or, ultimately, Prime Minister
Erodgan? Also, what is the extent of Russian influence in
Turkey's energy sector?


OMV: Hungary's "South Stream" a Dream
--------------


8. (C) Mitschek brushed aside last week's news reports that
Hungary had opted for closer cooperation with Gazprom instead
of supporting Nabucco. Hungary, in Mitschek's views, "wants
it both ways," and Prime Minister Gyurcsany often "says some
strange things." Mitschek maintained that Hungary's state
energy company MOL has shown an enhanced commitment to
Nabucco compared to its position last year. Mitschek
conceded that Russia had undoubtedly floated to Hungary the
idea of a "South Stream" pipeline transporting gas from
Russia to a Hungarian storage facility. However, such a
projet was more of a diversionary tactic than a real opion:
a potential route is undefined; Bulgaria and Romania
vehemently oppose a competing Russian pieline; andSouth
Stream would face the same infrstructure and regulatory
hurdles that Nabucco isalready addressing. Mitschek noted
that EC Enery Commissioner Piebalgs was in Budapest on March
0, hopefully to try to steer the GoH back toward aEuropean
gas project. Acording to Mitschek, Gyurcsany would be in
Moscow March 22 to discuss energy issues with Russian
President Putin.


Russia Angling for Participation in Nabucco?
--------------


9. (C) Mitschek agreed that conventional wisdom is that
Russia wants to stop any southern corridor gas pipeline in
its tracks to indefinitely lock up Kazakh and Turkmen gas
(reftel). However, Mitschek said that, perhaps, Russia is
pursuing a different tactic to prevent Transcaspian gas from
reaching Europe. Mitschek opined that Russia has created the
threat of a South Stream competitor to advocate for Russian
participation in Nabucco. If significant amounts of Russian
gas flows through Nabucco, there will be no pressure to build
the TCP, either from producers or suppliers. In this
scenario, Russia will remain the sole recipient of cheap
Kazakh and Turkmen gas. Mitschek said an additional 10 bcm
from Russia would make Nabucco extremely viable. When
pressed what form of Russian participation OMV might agree to
in Nabucco, Mitschek said "as a supplier, perhaps as a
passive shareholder, but certainly not with any operating
control."


Comment
--------------


10. (C) We take OMV's comments at face value that Azeri gas

VIENNA 00000728 003.3 OF 003


is preferred, but in a pinch, Nabucco may turn to Russian or
even Iranian supplies. OMV is taking a medium-term outlook
to the geopolitical situation in the region, i.e., that a
post-Ahmadinejad Iran will somehow be a more acceptable
partner for Nabucco and European governments. OMV rightfully
remains wary of Russia's intentions, but believes, if Russian
participation is critical to Nabucco's startup, it can manage
Gazprom's role within the project. An area of real
convergence with USG priorities is OMV's desire to access
Transcaspian gas sooner, rather than later.
Kilner