Identifier
Created
Classification
Origin
08BRUSSELS314
2008-02-29 10:56:00
CONFIDENTIAL
USEU Brussels
Cable title:  

OMV ARGUES FOR ACCESS TO IRANIAN GAS FOR NABUCCO

Tags:  ECON ENRG EPET ETRD EU RS IR 
pdf how-to read a cable
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FM USEU BRUSSELS
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INFO RUCNCIS/CIS COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUCNRAQ/IRAQ COLLECTIVE
RUEHAK/AMEMBASSY ANKARA
RUEHAH/AMEMBASSY ASHGABAT
RUEHTA/AMEMBASSY ASTANA
RUEHGB/AMEMBASSY BAGHDAD
RUEHKB/AMEMBASSY BAKU
RUEHMO/AMEMBASSY MOSCOW
RUEHNT/AMEMBASSY TASHKENT
C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 000314 

SIPDIS

SIPDIS

DEPT FOR OES
DEPT FOR EUR/ERA
DEPT FOR EEB/ESC

E.O. 12958: DECL: 03/01/2018
TAGS: ECON ENRG EPET ETRD EU RS IR
SUBJECT: OMV ARGUES FOR ACCESS TO IRANIAN GAS FOR NABUCCO


Classified By: T. Smitham for reasons 1.5 (B/D).

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 000314

SIPDIS

SIPDIS

DEPT FOR OES
DEPT FOR EUR/ERA
DEPT FOR EEB/ESC

E.O. 12958: DECL: 03/01/2018
TAGS: ECON ENRG EPET ETRD EU RS IR
SUBJECT: OMV ARGUES FOR ACCESS TO IRANIAN GAS FOR NABUCCO


Classified By: T. Smitham for reasons 1.5 (B/D).


1. (C) Summary. In a February 21 meeting with Deputy
Assistant Secretary for European and Eurasian Affairs Matthew
Bryza and Econ Officer, OMV CEO Wolfgang Ruttenstorfer argued
that the Nabucco project is at a critical stage, with his
most important concern being gas supplies. Ruttenstorfer
lamented Azerbaijan's continuing inability to commit gas
volumes for Nabucco and said that without this commitment the
project will not move forward. Even a commitment of 5
bcm/year from Azerbaijan would not be sufficient, however, to
make the project economic. Ruttenstorfer believes Nabucco
needs guarantees of gas supplies of at least 8-10 bcm/year
and realistic perspectives for 15 bcm/year down the road. As
a result, OMV is looking elsewhere in the Caspian region for
more gas. To Ruttenstorfer, the most logical source for
additional gas volumes is Iran. While acknowledging US
concerns over Iran, he argued that if the EU does not come up
with a solution to import gas from Iran, Russia will.
Ruttenstorfer warned Gazprom wants to export its gas at South
Pars via Turkmenistan and into Russia and beyond. He argued
that collusion between Moscow and Tehran on this issue is in
no one's interest in the Euro/Atlantic community. End
Summary.

--------------
Concerns Over Gas Volumes
--------------

2. (C) In a February 21 meeting with Deputy Assistant
Secretary for European and Eurasian Affairs Matthew Bryza and

SIPDIS
Econ Officer, OMV CEO Wolfgang Ruttenstorfer said he believes
the Nabucco project is at a critical phase. He is concerned
about transit negotiations with Turkey, but believes this can
be worked out. His greatest concerns are over gas supplies
for the project. Ruttenstorfer lamented Azerbaijan's
continuing inability to commit gas volumes for Nabucco. As
it stands now, he sees 0-5 bcm/year coming from Azerbaijan.
In other words, he does not feel comfortable that Azerbaijan

gas volumes are guaranteed. To Ruttenstorfer, even 5
bcm/year is not enough to justify the project on a commercial
basis and he stated there will be no decision to build based
on only 5 bcm/year of supplies. To move ahead with the
project, Ruttenstorfer believes Nabucco needs guarantees of
gas supplies of at least 8-10 bcm/year and realistic
perspectives for 15 bcm/year down the road. As a result, OMV
is looking elsewhere in the Caspian region for more gas.


3. (C) DAS Bryza acknowledged Ruttenstorfer,s concerns, but
appealed for a little more time to line up the Azeri volumes,
work on the Turkmenistan inter-connection, and pursue Iraq
gas. DAS Bryza underscored strong U.S. opposition to energy
investment with Iran. DAS Bryza explained Baku would
hopefully show a greater willingness to conclude a
sales/purchase agreement for 5 bcm/year once it concluded the
gas transit agreement with Ankara. Ruttenstorfer said he
hoped EU Nabucco Coordinator Jozias Van Aartsen would help
broker the gas transit agreement in coming weeks, then shift
to an intergovernmental agreement for Nabucco, (which DAS
Bryza stressed must include Azerbaijan from the outset).
Ruttenstorfer related that OMV has been talking with the
Kurdish authorities in northern Iraq in an attempt to acquire
exploration blocks with gas potential, but the Kurdish
authorities are focused on oil not gas. As a result, he sees
Kurdish gas as a possibility but not by 2013. He thinks
Iraqi gas supplies won,t be a factor until 2017 or more
likely 2020.

-------------- --
If the EU Doesn't Proceed with Iran Russia Will
-------------- --

4. (C) Ruttenstorfer indicated that if Azerbaijan doesn't
step up soon and demonstrate its ability to provide gas on
time, Nabucco will be forced to look toward Iran and Russia.
OMV's concern is that if the EU doesn't proceed with Iran,
the Russians will. Ruttenstorfer sees the Russians as lining
up their gas sources: Kazakhstan, Turkmenistan, and

BRUSSELS 00000314 002 OF 003


Uzbekistan. The logical next step is Iran. Ruttenstorfer
warned Gazprom wants to export its gas at South Pars via
Turkmenistan and into Russia and beyond. He argued that
collusion between Moscow and Tehran on this issue is in no
one's interest in the Euro/Atlantic community. Ruttenstorfer
believes Gazprom's ultimate goal is to buy Iranian gas and
sell it to the EU. The invoice to the EU may well be stamped
"Russian Gas", but he doesn't doubt the actual molecules will
be coming from Iran. Ruttenstorfer believes neither Europe
nor the US should accept this eventuality because it will
make the EU even more dependent on Russia. Ruttenstorfer
implied the US might have better success with Iran by
offering the carrot of gas exports to Europe rather than
using the current sanctions only approach.


5. (C) Ruttenstorfer was keen to make the US aware of the
problem of Russian designs on Iranian gas. He emphasized
that getting gas from Iran is not a new idea. At the end of
the 1980s OMV signed contracts with Iran for gas and actually
built part of Baumgarten to take Iranian gas, via a Russian
swap. As such the Russians are well aware Iran is the prize
when it comes to future gas supplies. Without an alternate
gas supply from Nabucco, Ruttenstorfer warned that Russia
will dominate the South East European market. DAS Bryza
stressed that the US does see other alternatives to Iranian
gas. He pointed to recent encouraging developments with
Turkrmenistan and the possibility of tying offshore gas from
Turkemenistan into the Azeri system. After consulting with
Embassy Baghdad, DAS Bryza also shared with OMV that the
Akkas field in western Iraq could provide gas volumes of 4 to
5 bcm/year as early as 2013.

--------------
South Stream is Not Commercially Viable
--------------

6. (C) Turning to South Stream, Ruttenstorfer stressed the
project makes no commercial sense and may never be built.
OMV estimates South Stream will cost EUR 9-10 billion just
for the Black Sea portion and that the pipeline is not
commercially viable. Russia is pursuing the project now to
pressure Ukraine, pressure Turkey on pricing for Blue Stream
gas, bolster its monopoly power on gas distribution in
Central Europe, and keep gas prices in general high. On
Gazprom,s desire to sustain higher gas prices, he agreed
with Bryza,s contention that it may cost Gazprom more to
produce and ship gas to Baumgarten than the $285 sales price
for such gas in Austria, but added Gazprom makes up the
difference through higher priced gas sales to Germany. These
factors, Ruttenstorfer conceded, were a key reason Gazprom
bought into the distribution hub at Baumgarten. Gazprom's
goal is to restrict competition and acquire as much European
infrastructure as possible while sustaining high gas sales
prices. Ruttenstorfer believes losing money in the short run
on a project like South Stream is not a big worry for Gazprom.


7. (C) OMV views Nabucco as a winning project, regardless of
how many countries sign MOU's on South Stream, as there will
be plenty of demand for gas provided by both a commercially
viable Nabucco project and the commercially challenged South
Stream. OMV views Russian gas as only additive to Nabucco,
if other, non-Russian gas can be found. OMV is anxious to
reduce its own corporate dependence on Gazprom, even though
the company is OMV's partner on many ventures.


8. (C) Comment. Whether or not Nabucco moves forward hinges
on three factors where the US can play an important role:

-- The first essential step is encouraging Azerbaijan to
clearly demonstrate its commitment to supply at least 4 to 5
bcm/year to Nabucco.

-- Secondly, working with the Iraqis to enable gas exports
from Akkas could be decisive for Nabucco.

-- Finally, we need to continue our work to encourage
Azerbaijan and Turkey to wrap up a gas transit agreement.

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End Comment.

Wohlers
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