VZCZCXRO6528
PP RUEHIK
DE RUEHVI #1582 3491255
ZNR UUUUU ZZH
P 151255Z DEC 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 3880
INFO RHEBAAA/DEPT OF ENERGY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS VIENNA 001582 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EPET AU RU
SUBJECT: Gas Trading Exchange Formally Launched -- Without Gazprom 
(For Now) 
 
REF: A) 08 Vienna 1733; B) 08 Vienna 242; C) 07 Vienna 2980 
 
Sensitive but unclassified -- protect accordingly. 
 
¶1. (SBU) On December 11, Austrian national oil/gas company OMV and 
the Vienna Stock Exchange (VSE) formally launched a new gas trading 
platform as part of the Central European Gas Hub (CEGH), a 
gas-service provider and currently a 100% subsidiary of OMV.  OMV 
and VSE (which is slated to take a 20% stake) hope the fully 
licensed exchange will strengthen CEGH and the Baumgarten physical 
hub as the preeminent international gateway and trading point for 
gas in central Europe.  In contrast to earlier announcements, the 
exchange was launched without formal Gazprom participation -- due to 
regulatory concerns and (according to OMV) reticence on the part of 
some Gazprom leaders. 
 
No Gazprom Participation (For Now) 
- - - - - - - - - - - - - - - - - 
 
¶2. (SBU) CEGH has operated for several years as a technical services 
provider, helping traders arrange "over the counter" gas swaps and 
purchases for delivery at Baumgarten and points downstream.  As part 
of Austria's long-term gas supply contract extension with 
Russia/Gazprom in 2007, Gazprom was given the right to take a 50% 
stake in the CEGH trading/services platform joint venture (reftels). 
 A November 2008 agreement expanded and modified the deal: Gazprom 
Germania GmbH would take 30% and Centrex Europe Energy & Gas AG (a 
Russian trading company) a 20% stake in CEGH, with VSE taking 20% 
and OMV's stake to be reduced to 30% (COMMENT: maintaining a de 
facto 50% Austrian/50% Russian split).  Oddly, CEGH remained a 100% 
subsidiary of OMV and the exchange's formal launch was repeatedly 
delayed.  OMV contacts insisted, though, that implementing the 
ownership agreement was a mere formality. 
 
¶3. (SBU) However, the exchange's launch as an OMV/VSE vehicle has 
revealed underlying tensions over whether Gazprom/Russian 
participation would compromise the "ring-fencing" (shipper 
confidentiality and no discrimination rules) mandated by unbundling 
rules (COMMENT: not to mention the tight rules governing financial 
exchanges).  A study by PriceWaterhouseCoopers (PWC) apparently 
argues that Gazprom participation would mar the exchange's 
reputation, leading some traders to avoid it (NOTE: Post does 
NOT/NOT have access to the PWC report).  Austrian regulator 
E-Control has publicly made similar comments on the need for 
independence.  In media reports, OMV and VSE have said they will 
seek European Commission approval for Gazprom participation, 
approval they estimated would take about six months.  OMV and VSE 
have tried to dispel related concerns, saying that trading on the 
exchange would be subject to "strict rules and requirements" in 
accordance with Austria's Stock Exchange Act, which guarantees 
neutrality, confidentiality, and minimized risks.  The GoA stands 
behind the original deal: Economy Minister Reinhold Mitterlehner 
said at the December 11 ribbon cutting that the Austrian government 
welcomes Gazprom participation "up to the 50 percent" foreseen in 
existing MOUs. 
 
¶4. (SBU) In a meeting with Embassy and Department representatives on 
December 11, OMV Gas representatives told us that Gazprom's no-show 
also reflects that company's internal debates over its downstream 
strategy.  While the newer vanguard (such as Gazprom's trading unit 
in London) recognize the opportunities in new exchanges -- which 
make downstream markets more dense and smooth price/demand 
developments -- some in Moscow still lean on the tried-and-true 
instruments (big long-term deals, negotiated at the highest levels) 
and are suspicious of market/regulatory innovations. 
 
The Path Ahead 
- - - - - - - - 
 
¶5. (U) Operating in a pilot phase since 2008, the exchange already 
handles spot market, over-the-counter volumes of about 2 bcm/month. 
This month marks the first centrally-cleared, standardized 
spot-market contracts.  Futures-contract trading will debut late in 
the first quarter of 2010.  CEGH will be responsible for marketing 
and customer relations, while overall exchange management will rest 
with VSE. 
 
EACHO