What’s Going On at OMV?

Ever since the announcement of the South Stream pipeline of Gazprom and ENI, speculations have been swirling about Europe regarding the feasibility of the competing Nabucco pipeline proposal. At the center of these concerns is the Austrian energy firm OMV, who along with Botas of Turkey, Mol of Hungary, Transgaz of Romania and Bulgargaz of Bulgaria, had been working on this pipeline to bypass Russia.

With characteristic humor, Gazprom has stated that the South Stream is no threat to Nabucco – but given that Gazprom had also said that it had no interest in taking Kovykta from BP, such declarations should be taken with a grain of salt. So far the market certainly isn’t buying it, and OMV saw its shares dip a point and half on the Frankfurt market. In a move that could be viewed as a reaction to the South Stream offensive, OMV launched a hostile bid on MOL, doubling its stake to 18.6% and causing the stock value to rise by 25%. Similarly, OMV has shown that it is well aware of the political interest in Nabucco, and has been using it to fight back efforts from competition authorities to unbundle supply and distribution of energy. CEO Wolfgang Ruttenstorfer told the FT that “If you look at a programme like Nabucco, who would undertake all this effort if they could not sell the gas that they transport? The effort is really huge, and I am not sure whether it would be implemented if you separated the ownership of the pipeline from the supply business.” As may be expected, OMV’s sudden courtship has been unrequited in Hungary, met with protectionism and even anti-monopoly concerns. PM Ferenc Gyurcsany said “I do not consider it friendly when a state-owned foreign company, without giving notice, starts acquiring stakes with the intention of gaining (obtaining) control over the Hungarian company.” The Hungarian opposition party, Fidesz has even said that Russia is behind this move. Indeed, just yesterday an Austrian magazine reported that Gazprom was seeking to buy out a large chunk of OMV, although this has been denied. Another strange detail is that a former Gazprom executive, Medget Rakhimkulov, seems to have made off with $175 million by selling his stake in MOL with suspicious timing. But there is little illusion that OMV is actually trying to help Europe diversify its energy sources – Russia had long ago made Austria a textbook case of energy preemption, and the series of bilateral agreements the Russians have set up there illustrate exactly how to divide and conquer a common EU energy policy. A useful article in the Asia Times summarizes it: Last September, Gazprom signed an agreement with Austria to supply 80% of their gas, followed shortly by the commission of a massive gas storage facility near Salzburg, and Austria became the first European country ever to allow Russia direct access to the downstream distribution business. A little over a month ago, they signed another memorandum of understanding with Gazprom, a deal which Derek Brower says “effectively pits Mol and OMV against each other in a battle to see which company will develop Gazprom’s Central European gas hub most quickly.” In conclusion, the outlook for Nabucco’s feasibility, and therefore the current outlook to diversify supply away from Russia, looks increasingly grim. There is a principal problem of lacking political will: too many of these countries are fearful of how Moscow would respond, and simply stand to lose more than they would gain from playing hardball with Gazprom, at least in the short term. For example, a spokesman for Botas said “Europe needs gas. … You have to remember that Turkey depends on Gazprom. … We have to have good relations with Gazprom.” Such a statement, which must have been extremely painful for Turkey to make as they are the prime losers from South Stream, neatly sums up what most of these countries are going through. When Gazprom expresses to you that any support of a non-Russian energy project would be viewed with disappointment or even hostility, it is understood that it is a parallel message from the Kremlin, and thus the consequences become unbearable. And it is here where the Ukraine cut-off functions as useful leverage – everyone seems to believe that Russia would be willing to do it again if so provoked. It would inappropriate to argue that OMV is just another ambassador for Russian interests in Europe, but it is clear where the Austrians place their loyalty.