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Gazprom Sweeps The Austrians Off Their Feet
RIA Novosti economic commentator Vasily Zubkov, May 28

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

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.

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