May 25, 2007

Gazprom sweeps the Austrians off their feet

14:40 | 25/ 05/ 2007

MOSCOW. (RIA Novosti economic commentator Vasily Zubkov) - The main issue on President Vladimir Putin's agenda in Vienna was economic cooperation, predominantly gas supplies and increased gas transit to Western Europe, just as Austrian Chancellor Alfred Gusenbauer had predicted before the official visit.

Putin's trip strengthened ties between Russian energy giant Gazprom and its Austrian partner, OMV, which have the longest relationship in the history of Russian-Austrian gas cooperation. In 2008, Gazprom and OMV will celebrate 40 years of beneficial interaction, which has not been affected even by the current EU-Russia tensions.

Gazprom CEO Alexei Miller represented Russia's extensive interests in its gas dialogue with Austria, which is acquiring strategic elements.

In autumn 2006, Austria signed an agreement with Gazprom to prolong contracts on the annual supply of up to 7 billion cubic meters of gas until 2027, becoming the first country in Europe to agree to such an extended agreement. Likewise, in 1968 it was also the first western country to sign a long-term contract for natural gas supplies from the Soviet Union.

By the start of this year, Russia had supplied more than 150 billion cubic meters of gas to Austria, or 80% of its needs. The Alpine republic's annual gas consumption amounts to 9.14 billion cubic meters, and production to some 2 billion.

Unlike many other European countries, Austria is satisfied with the amount of supplies from and the terms of its contracts with Russia, and has made quite a few steps to meet its partner halfway.

Last year, Gazprom was granted the right to take part in the sale of nearly 50% of gas supplies to end consumers in several federal states. Its dream of producing, transporting and selling natural gas to end users abroad, which promises a substantial increment in revenues, is coming true in Austria.

Putin said in Vienna that gas costs $240 per 1,000 cubic meters on the border and is sold to end consumers at $1,000.

However, trade is not the focal point of the Russian-Austrian energy dialogue. Austria is the crucial gas supply hub for transiting Russian natural gas to Italy, France, Hungary, Germany, Slovenia and Croatia. Annual transit through the country exceeds 30 billion cubic meters and is expected to grow.

Gazprom is directly involved in gas transit across Austria, part of which is delivered by GWH Gas und Warenhandelsgesellschaft m.b.H (a joint venture of OMV, Gazexport und Centrex). Gazexport, a 100% subsidiary of Gazprom, holds a 50% stake in it. GWH was set up in 1991, bought its first batch of Russian natural gas in 1994, and began transiting it to Germany across Austria in 1996.

Putin's visit has also strengthened transit relations. Gazprom CEO Alexei Miller and OMV president Wolfgang Ruttenstorfer signed a memorandum of understanding which confirms Gazprom's intention to acquire a stake in the Central European Gas Hub, a wholly owned subsidiary of OMV Gas International controlling the transport of gas, including Russian gas, in Central Europe.

The two countries are also extending their cooperation in gas storage. Miller discussed the issue with Martin Bartenstein, Austria's Minister of Economic Affairs and Labor.

Gazprom has an agreement on the construction of Austria's largest underground gas storage facility, with a capacity of 2.4 billion cubic meters, at Haidach, near Salzburg, in a consortium with Austria's RAG and Wingas, a joint venture of Gazprom and Wintershall (a subsidiary of German chemical concern BASF).

Another transportation project that was most probably discussed in Vienna is the proposed Nabucco gas pipeline, which would transport Central Asian gas from Erzurum in Turkey to Austria. Its operator should be OMV Gas International. President George Bush Sr., Turkey and Austria proposed the pipeline as a means of bypassing Russia and evading Moscow's control; the idea was later taken up by the European Union.

However, the multibillion-dollar project has so far remained on paper.

On May 12, Vladimir Putin, Kazakhstan's President Nursultan Nazarbayev and Kurbankuli Berdymukhammedov, the leader of Turkmenistan, agreed to jointly modernize the pipeline running along the eastern and northern shores of the Caspian Sea and lay a new pipe near it. This will double the pipeline's capacity and make it the main export route for Turkmen, Kazakh and Uzbek gas.

The EU is not happy, as Nabucco's future now looks gloomy. Experts say the three leaders' decision signaled "the last death of Nebuchadnezzar," the Babylonian king whose shortened name is Nabucco.

Gazprom does not fear competition from Nabucco. Sergei Kupriyanov, a spokesman for the Russian gas monopoly, said after the official talks in Vienna that Nabucco was only an expression of several countries' intent to use their territories for gas transit. "However, there is no gas to transport yet, and no contracts for its sale," he said.

Has Putin convinced the practical Austrians to abandon the idea of a "communal pipe"? According to the documents signed in Vienna, he has assured them that Gazprom is more than enough for Central Europe.

The gas segment of the talks was clearly a success, along with the rest of the visit. Putin has returned to Moscow with a portfolio of about 30 contracts covering different economic sectors and worth 3 billion euros.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Today, in Vienna (Austria) in the frames of the official visit of the Russian Federation President Vladimir Putin, Alexey Miller, Chairman of the Gazprom Management Committee and Dr. Wolfgang Ruttenstorfer, Chief Executive Officer and Chairman of the Executive Board of OMV AG have signed a Memorandum of understanding.

Pursuant to the document the parties confirm Gazprom’s intention to participate in the Central European Gas Hub (a 100 per cent subsidiary of OMV Gas International) located at Baumgarten.

“These integrated projects will become another milestone in the cooperation of our companies and contribute to reliability increase of natural gas supply to Europe,” said Wolfgang Ruttenstorfer.

“The Memorandum signed today with Austrian partners confirms that the Gazprom development strategy follows a dynamic energy sector development in the countries of the European Union and will contribute to provision of the European energy security,” said Alexey Miller.


Within more than 38 years Austria’s largest oil and gas group OMV has been the major business partner of Gazprom. OMV was the first Western company to enter in 1968 into a long-term contract for the purchase of natural gas in the USSR. Until 1987 Gazprom owned a 100 per cent stake in the company. Nowadays the largest shareholder of OMV is the state (via the Austrian state holding company OIAG owning a 31.5 per cent stake).

OMV Gas International was established in early 2006 as an OMV holding company responsible for the natural gas business including gas logistics and storage through the subsidiaries as OMV Gas (100 per cent), Nabucco Gaspipeline International and Adria LNG, gas trading via EconGas (50 per cent) and Petrom (51 per cent).

In May 2005 Gazprom export and OMV agreed to supply natural gas to Western Europe via the Western-Austrian gas pipeline (WAG-West Austria Gasleitung). A new Agreement was concluded for a twenty-year period over 2007 to 2027. Pursuant to the document, OMV annually until 2027 will transport some 4.4 bcm of Russian gas from the Slovak border via the territory of Austria up to the German boarder.

In September 2006 Gazprom and a group of Austrian companies signed the long-term contracts to supply gas to Austria. In accordance with the contracts signed Gazprom will annually supply nearly 7 bcm of gas to Austria until 2027.

As of January 1, 2007, from the beginning of gas supplies to Austria Gazprom supplied more than 150 bcm.

The Central European Gas Hub in Baumgarten is one of the largest gas distribution centers in Europe. In 2006 the Hub distributed 7.7 bcm of gas.

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