VZCZCXRO0593
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
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DE RUEHVI #0411/01 0801534
ZNR UUUUU ZZH
P 201534Z MAR 08
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 9816
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 VIENNA 000411 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR E, EEB/ESC, EUR/ERA, AND EUR/AGS 
 
E.O. 12958: N/A 
TAGS: ENRG PREL EPET ECON AU
SUBJECT: SCENESETTER FOR U/S JEFFERY'S VISIT TO VIENNA 
MARCH 27 
 
Summary 
------- 
 
¶1.  (SBU) Your visit to Vienna comes as Russia presses ahead 
with a regional campaign to promote the South Stream pipeline 
as a rival to the OMV-led Nabucco project.  While some 
analysts claim that Nabucco is now "dead," OMV remains 
committed to starting operations by 2012.  Your meetings with 
OMV and Austrian Government officials provide an opportunity 
to reaffirm USG support for Nabucco and to encourage OMV to 
work with Azerbaijan and commercial operators to ensure that 
there is sufficient Azeri gas for the initial phase.  We have 
received indications that OMV is, for now, not moving forward 
to implement its April 2007 deal with Iran to develop a South 
Pars gas field.  However, we recommend that you reiterate USG 
opposition to this deal, which undercuts international 
efforts to resolve Iran's nuclear issue.  Gazprom has 
acquired a 50% share in OMV's gas trading platform at 
Baumgarten.  We should confirm that this joint venture with 
Gazprom does not permit the Russian company to control any of 
the infrastructure or existing gas storage facilities at this 
critical gas hub.  End Summary 
 
 
Nabucco Gas Pipeline Project 
---------------------------- 
 
¶2.  (SBU) OMV is leading the Nabucco consortium's efforts to 
bring Caspian gas to Europe to meet growing demand and to 
diversify Europe's gas supplies away from Russia.  Nabucco 
faces obstacles: some slippage in the project's timeline; 
uncertainty about sufficient quantities (8 bcm) for the 
start-up; protracted discussions between Azerbaijan and 
Turkey regarding an equitable transit fee; and Russian 
opposition.   Despite these challenges, Nabucco offers the 
best chance to bring large volumes of Caspian gas to Europe 
via a non-Russian pipeline. 
 
¶3.  (SBU) OMV remains concerned that there will not be enough 
Azeri gas for the initial phases of the TGI and Nabucco 
projects by 2012.  The company is therefore considering other 
options, including limited quantities of Russian gas.  We 
need to convince OMV that, given new, upward estimates of 
Azeri gas potential, Azerbaijan by itself could provide 
sufficient volumes for Nabucco's start-up.  Medium- and 
long-term supply for Nabucco to expand to a planned capacity 
of 31 bcm by 2018 could also come from Turkmenistan, Egypt, 
and Iraq.  Iran, with enormous untapped gas reserves, is also 
enticing, but OMV has told us that the international 
situation would have to improve before it would consider this 
option.  OMV strongly believes that Nabucco is a much more 
commercially viable project than Russia's South Stream.  In 
OMV's view, both projects could co-exist, but the initial 
load factors would be "lousy."  OMV CEO Ruttenstorfer and 
Economics Minister Bartenstein have publicly said that South 
Stream could be complementary to Nabucco. 
 
 
OMV's Iran Deal 
--------------- 
 
¶4.  (SBU) In April 2007, OMV signed a Heads of Agreement with 
the National Iranian Oil Company to participate in the 
development of the South Pars 12 Gas Field.  The USG has 
consistently and vigorously emphasized to OMV and the GoA 
that the deal, although only a preliminary agreement, sent 
the wrong message at a time when international sanctions were 
increasing pressure on the regime.  The deal did not 
contravene Austrian, EU, or UN law, but worked against 
diplomatic efforts, including the EU-3 initiative, to force 
Iran to come clean on its nuclear program.  If implemented, 
the deal could trigger U.S. sanctions against OMV under the 
Iran Sanctions Act.  The Austrian political class continues 
to support OMV's Iran deal publicly, but recent information 
indicates the GoA, which owns 31.5% of OMV, has asked OMV to 
put the deal on ice for now. 
 
 
Baumgarten Gas Hub 
------------------ 
 
¶5.  (SBU) OMV's "Baumgarten" facility encompasses two 
distinct operations: a natural gas shipping hub and a gas 
trading platform.  The physical gas hub, which has been in 
operation since 1968, handles over 50 bcm of gas annually, 
predominantly from Russia.  One-third of all Russian gas 
exports to Europe transits through Baumgarten.  The trading 
platform, located in Vienna, is a virtual gas exchange, which 
offers commercial, logistical, and auctioneering services to 
 
VIENNA 00000411  002 OF 002 
 
 
traders. 
 
¶6.  (SBU) On January 25, OMV and Gazprom signed an agreement 
allowing the Russian company to take a 50% stake in the gas 
trading platform.  The agreement also foresees joint storage 
projects in the region.  Some commentators have alleged that 
the joint venture will allow Gazprom to take over the 
Baumgarten hub.  However, OMV has consistently told us that 
the Gazprom agreement pertains only to the trading platform 
and that OMV would not allow Gazprom operational control over 
Baumgarten's infrastructure, existing gas storage facilities, 
or control over the sale and distribution of gas coming 
through Baumgarten. 
 
 
Iraq Exploration 
---------------- 
 
¶7.  (SBU) In November 2007, OMV signed two production sharing 
agreements with the Kurdish Regional Government (KRG) to 
develop two oil blocks in northern Iraq.  The Iraqi Oil 
Ministry subsequently decided to halt all oil exports to 
Austria because of its displeasure with the OMV-KRG deal 
absent a national Hydrocarbon Law.  OMV believes its deal 
conforms to the Iraqi Constitution.  OMV also views Iraq as a 
possible supplier for Nabucco in the medium-term. 
Kilner