VZCZCXRO1698
PP RUEHIK
DE RUEHVI #0113/01 0291544
ZNR UUUUU ZZH
P 291544Z JAN 10
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 4088
INFO RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 VIENNA 000113 
 
SIPDIS, SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG PGOV AU
SUBJECT: Nabucco Pipeline Investment Decision by end-2010; 
Impending IGA on South Stream 
 
REF: A) 09 VIENNA 941; B) 09 VIENNA 1447; C) 09 VIENNA 596 
 
VIENNA 00000113  001.2 OF 002 
 
 
Sensitive but Unclassified - Protect Accordingly. 
 
¶1. (SBU) SUMMARY: In informal discussions, OMV and Nabucco Company 
contacts have reiterated their expectation that the consortium will 
launch the project ("final investment decision") by the 4th quarter 
of this year, with initial gas deliveries by the end of 2014.  The 
consortium continues to expect start-up gas to come primarily from 
the Shah Deniz II gas field in Azerbaijan: the BP-led Shah Deniz II 
consortium is reluctant to start its second production phase before 
the Nabucco decision, but contacts here are optimistic Azerbaijan 
will sign with Nabucco since the "European offer" is better than 
Russian alternatives.  The EBRD and EIB will co-finance the 
pipeline, but each Nabucco Consortium member will also have to raise 
EUR 480 million, with Romania and Bulgaria likely to need a 
government guarantee for their share. There are indications Austria 
will soon sign an IGA on participation in the competing South Stream 
pipeline.  END SUMMARY. 
 
SHIPPER CONTRACTS WILL DETERMINE NABUCCO INVESTMENT DECISION 
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¶2. (SBU) Emboffs spoke at length to Nabucco Company spokesman 
Christian Dolezal and briefly with the head of OMV's gas business, 
board member Werner Auli.  They told us that "contrary to some media 
reports and expert opinions" pipeline preparations are still on 
track.  While production, transit, and delivery issues are closely 
entwined, the Nabucco Company and OMV stress that Nabucco and its 
shareholders will only operate the pipeline, whereas gas shippers 
are negotiating transport contracts with suppliers including NOCs in 
Azerbaijan and Turkmenistan.  Dolezal said enough gas traders are 
interested and gas supply contracts should be signed this year; a 
"heads of agreement" has already been drafted.  Those contracts will 
be "determining" for the Nabucco final investment decision to be 
made by the fourth quarter this year. 
 
SHAH DENIZ II CONSORTIUM: WAITING GAME 
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¶3. (SBU) Dolezal confirmed privately (and Auli has said publicly) 
that Shah Deniz II gas is sufficient to launch Nabucco.  Dolezal 
referred to a January 15 public statement by Rovnag Abdullayev 
(president of SOCAR, Azerbaijan's NOC) that his country "is ready to 
provide gas for Nabucco."  Dolezal opined that SOCAR is waiting to 
commit until it has the "maximum safety" that Nabucco will be 
built. 
 
¶4. (SBU) Dolezal identified a potential snag: the "reluctance" of 
the Shah Deniz II consortium (centered on BP, Statoil, and SOCAR) to 
commit to a date for the second production phase due to so-called 
"transit contract problems" to Europe.  They might wait until after 
the Nabucco investment decision, Dolezal speculated.  The Nabucco 
Company would like the EU to take a more coordinated approach in the 
Caspian Region -- akin to the Russians and Chinese -- which would 
demonstrate more commitment on Nabucco.  Auli is somewhat more 
optimistic: Russian offers to Azerbaijan and Turkmenistan are less 
lucrative than Nabucco's.  Since the Shah Deniz consortium consists 
of highly professional companies, it would commit to providing gas 
for Nabucco, Auli opined -- pointing out that the Shah Deniz 
Consortium has a time-limited production concession in Azerbaijan, 
so it can't afford to wait forever. 
 
TURKEY'S BOTAS POISED TO BUILD PIPELINE CONNECTOR TO IRAQ 
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¶5. (SBU) The Embassy's interlocutors said that Turkey's commitment 
to Nabucco following the July 2009 Nabucco IGA has been excellent. 
Dolezal said Turkish Botas is considering planning and constructing 
the necessary pipeline to Iraq: once such a pipeline is up and 
running, Iraq could deliver 10 bcm/year to Nabucco, he estimated. 
 
FINANCING: GOVERNMENT GUARANTEE NEEDED IN ROMANIA AND BULGARIA 
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¶6. (SBU) Financing for Nabucco is on track, Dolezal said. Each of 
the six consortium partners will have to raise EUR 480 million.  In 
the case of the "financially weak" Bulgarian and Romanian companies, 
a government guarantee is a prerequisite, Dolezal said.  EBRD, EIB 
and commercial banks have agreed to co-finance the project within 
the overall framework (the commitments by the consortium partners). 
Auli estimated IFIs and commercial banks will contribute EUR 5.5 
billion to the overall EUR 8 billion project cost. 
 
¶7. (SBU) Dolezal said a "thorny issue" might be environmental impact 
assessments, which may trigger popular opposition in Austria and 
some CEE countries.  (OMV contacts disagreed, saying that the 
consortium has been meticulous in its preparations). 
 
SOUTH STREAM: IGA WITH AUSTRIA TO BE SIGNED SOON? 
 
VIENNA 00000113  002.2 OF 002 
 
 
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¶8. (SBU) Embassy contacts say Russia and Austria will likely 
conclude soon an intergovernmental agreement between on Austria's 
participation in the South Stream project.  COMMENT:  While choosing 
words carefully, contacts imply that OMV is tepidly interested in 
South Stream, but must keep its Russian ties strong over the next 
few years. END COMMENT. 
 
EACHO