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RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVI #2853/01 3311019
ZNR UUUUU ZZH
R 271019Z NOV 07
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 9070
INFO RHEBAAA/DEPT OF ENERGY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 VIENNA 002853 
 
SIPDIS 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON PGOV EPET AU
SUBJECT: AUSTRIA'S BAUMGARTEN GAS HUB AND GAZPROM INTERESTS IN 
AUSTRIA 
 
 
Summary 
------- 
 
¶1.  (SBU) OMV Gas executives recently confirmed to Emboffs that 
Gazprom will become a 50% operator in OMV's Central European Gas Hub 
(CEGH), which is actually a web-based trading platform in operation 
since 2005 offering commercial, logistical, and auctioneering 
services to gas traders.  OMV maintained that OMV and Gazprom will 
provide these services to companies shipping gas through the 
physical Baumgarten gas hub, and that neither company will have 
access to proprietary commercial data.  OMV hopes to increase 
Baumgarten's volume from current levels of 50 billion cubic meters 
(bcm) to 70-75 bcm by 2015, as the Nabucco pipeline and OMV's LNG 
regassification plant in Croatia come on line.  Gazprom's 
involvement in the CEGH follows a pattern of Russian movement into 
Austrian downstream activities.  OMV remains schizophrenic about 
Gazprom's interests in Austria: OMV has profited enormously from its 
long-term relationship with Gazprom; however, it remains leery of 
Russian intentions, particularly vis-`-vis Nabucco and the prospect 
of more intense competition with Gazprom on the Austrian and Central 
European markets.  End Summary. 
 
¶2.  (SBU) Emboffs recently visited OMV's Baumgarten physical gas hub 
near the Slovak border, and OMV's Central European Gas Hub (CEGH), a 
gas trading platform and monitoring center located in Vienna.  Post 
requested the tours and subsequent meeting with OMV Gas executives 
in an effort to obtain more precise information about Russian 
interests in the hubs.  Austrian and international press have 
reported that Gazprom, in a follow-up to President Putin's May visit 
to Vienna, had assumed a substantial stake in the physical hub's 
operations. 
 
 
Baumgarten: One-Third of Russia's Gas to Europe 
--------------------------------------------- -- 
 
¶3.  (U) The Baumgarten natural gas station has been in operation 
since 1968.  Approximately 50 billion cubic meters (bcm) of natural 
gas, mainly from Russia, flows through Baumgarten annually.  This 
represents 10% of Europe's gas consumption and one-third of Russian 
gas exports to Europe.  From Baumgarten, there are three main 
pipelines through which the gas is further distributed to Hungary, 
to Italy/Slovenia/Croatia, and to Germany/France.  Reinhard 
Mitschek, Managing Director of Nabucco Gas Pipeline International, 
told us that by 2012-2015, Baumgarten could become the largest 
European gas hub with some 70-75 bcm annually.  In 2012, the initial 
stage of Nabucco, as well as the planned opening of an LNG 
regassification plant in Croatia will increase volumes. 
 
 
Gazprom Participation in Gas Trading Platform 
--------------------------------------------- 
 
¶4.  (SBU) Gottfried Steiner, Head of OMV Gas' International Affairs 
Division, stressed that the CEGH has been operating since 2005 as a 
100% subsidiary of OMV.  During Russian President Putin's May 2007 
visit, OMV and Gazprom signed an MOU, under which the Russian 
company would acquire a 50% stake in the CEGH. 
 
¶5.  (SBU) OMV's strategy, according to Mitschek, is to profit from 
continuing liberalization of Europe's gas sector and Austria's 
proximity to Central and Eastern European markets to build up the 
CEGH into continental Europe's largest gas trading center.  The CEGH 
could then better compete with Europe's other major gas trading 
platforms in Zeebrugge, Netherlands, and in Emden on the 
Dutch-German border.  Mitschek emphasized that OMV hopes to position 
itself for the inevitable trend towards a spot gas market. 
 
¶6.  (SBU) The CEGH platform offers commercial, logistical, and 
auctioneering services.  At the CEGH, OMV and Gazprom are strictly 
service providers, not traders.  According to OMV, the CEGH's 
internal controls do not allow OMV or Gazprom to access proprietary 
information about companies trading on the platform. 
 
¶7.  (U) The hub operates as a web-based electronic gas trading 
platform and market place for its customers, with natural gas traded 
and auctioned.  Currently, 58 dealers are registered to use the CEGH 
platform, trading up to 1,500 bcm per month.  Services include the 
physical transfer of gas from one node to another ("wheeling"), 
recording of gas transfers from the provider through the hub to the 
customer ("title tracking"), and gas auctions. 
 
 
Gazprom's Reach into Austria 
---------------------------- 
 
¶8.  (SBU) Gazprom's interest in the CEGH platform complements the 
firm's apparent strategy to become a major stakeholder in the 
Austrian gas business on various levels: 
 
 
VIENNA 00002853  002 OF 002 
 
 
- In September 2006, Gazprom became the first foreign company to 
obtain permission to sell gas directly to Austrian state energy 
suppliers in three of Austria's nine states.  In a March 2007 
interview, Gazprom Vice President Alexander Medvedev stated that 
Gazprom intends to further extend its downstream business in 
Austria. 
 
- As a deliverable for Putin's May 2007 visit, Gazprom concluded a 
joint venture with the Austrian energy company RAG and Germany's 
Wingas to develop a natural gas storage facility in Haidach near the 
German border.  The facility will begin operations in 2008 with 2.4 
billion bcm capacity, a quarter of Austria's yearly gas consumption. 
 (Note: Various press reports have erroneously stated that the 
RAG/Gazprom joint venture was an agreement permitting the Russian 
company to gain control of Baumgarten's operations.  End Note) 
 
- Unconfirmed press reports indicate Gazprom's interest in buying 
shares in a planned 800 megawatt gas power station in the south of 
Austria (Mellach). 
 
 
Comment 
------- 
 
¶9.  (SBU) OMV has had a long and mutually beneficial relationship 
with Gazprom since 1968.  OMV undoubtedly believes it "understands" 
Gazprom and can "manage" the Russian company better from inside. 
Gazprom most likely views Austria as one of its more important 
inlets into the European market, given its historical relationship 
with OMV, Baumgarten's excellent connections to major European 
markets, and Baumgarten's increased volumes after Nabucco begins 
operations.  Nevertheless, OMV remains schizophrenic about its 
relationship with Gazprom: while profiting from close commercial 
relations, OMV remains leery of Russian intentions to disrupt 
Nabucco and to become even more of a competitor on the Austrian and 
Central European markets. 
 
KILNER#