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OMV pursues bid for MOL in fight against Gazprom

Wolfgang Ruttenstorfer spreads out a large map of Europe between us and, like a general planning a military campaign, his arm sweeps from the Alps to the Carpathians and the Black Sea as he maps out the energy future of Central and Eastern Europe.

This is our market, says the chief executive of OMV, Austria’s leading oil and gas company, and his hand runs over 13 countries, from south-eastern Germany, the Czech Republic and Slovakia to Hungary, Romania and the Balkans. Thirteen countries in total including Turkey. To the north are Poland and the Baltic states, markets that are difficult to enter, he says. His spyglass is focused on the region to the east and the south. The battle for control of Europe’s energy supply has commenced.

“Russia regards this area as its natural market and the Kazakhs moved into Romania last year,” the OMV chief said, pointing to the purchase of Rompetrol by Kazmunaigaz and Gazprom’s recent and intense focus on the Balkans. In January, Gazprom bought NIS, the Serbian oil company, and the following month it agreed a pipeline deal with the Serbian Government. Dmitri Medvedev, the president-elect of Russia, traveled to Belgrade to sign a $1.5 billion (£756 million) agreement that forms part of South Stream, Russia’s ambitious project to stretch a gas pipeline across the Black Sea and into Central Europe. “They are moving west and we are moving southeast,” Ruttenstorfer said. “Gazprom has been the traditional gas supplier of Central and southeastern Europe. What is changing now is they go directly to the market.” These geopolitical games extend beyond the political and commercial reach of a medium-sized oil multinational, but, in the meantime, OMV is bent on building an Austro-Hungarian empire that can hold the line at the border of Central Europe.

Last June, OMV made a €13.8 billion (£10.7 billion) unsolicited offer for MOL, the Hungarian group that is its rival for control of Central Europe’s booming market in road fuels. In Budapest, the reaction to the Austrian move was rage, followed by panic. Not only has MOL shuffled 40% of its stock into friendly hands, it has persuaded the Hungarian parliament to pass an anti-takeover law. To give OMV strength against Gazprom, it needs to bulk up, hence the move on MOL. “You have to deal with Gazprom and it is not a small company. What we can do is grow, expand and add value. What is the alternative? Being taken out step by step, piece by piece,” Ruttenstorfer said. The CEO is biding his time in his campaign against MOL, which is taking legal action in Hungary, and a lengthy anti-trust review has begun in Brussels. “What we try to establish is a strong Central European oil company and that is the reason we try to merge with MOL,” he said. “That is the reason why we are promoting a project like Nabucco because we need to have a strong Central European oil and gas company.”

Nabucco, named after the Verdi opera about the oppression of the Jews by Nebuchadnezzar, the Babylonian king, is Europe’s response to the threat posed by Gazprom’s increasing influence as the largest gas supplier to Europe. OMV is leading the project to build a gas pipeline from Erzurum, a gas transit hub in eastern Turkey, to Baumgarten, OMV’s gas hub in Austria. But it has struggled to advance past the blueprint stage and is being vigorously opposed by Russia. The real challenge, the OMV chief argues, is not Nabucco, which is merely a transport company, but the gas that will be carried through the 3,300km of steel tube. The Nabucco shareholders must buy the gas from somewhere. “That is its weakness,” Ruttenstorfer said.

Azerbaijan is the obvious early supplier - the South Caucasus pipeline from Baku is already bringing gas to Erzurum - but it cannot supply enough to fill the pipeline. Who are the alternative suppliers? “Iraq, the day after tomorrow,” Ruttenstorfer said, with a hollow laugh. “I say it because the Americans always refer to Iraq.” The others? “Russia could supply tomorrow,” he said, with another laugh. “And then there is always the question of Iran, which has the world’s second-largest gas resources, but this is also the day after tomorrow.”

Today OMV’s facility at Baumgarten - the terminal for Russia’s main export lines into Central Europe - is supplied with gas from Russia. That will not change unless Nabucco is able to start bringing alternative supplies into Europe. If it does not, will Gazprom be able to manipulate this market to its advantage? Ruttenstorfer said that there were 60 market players but conceded: “No doubt about it, the Russians are important in the European gas supply. If we don’t do anything about it, they might become more important.” (Times Online, UK)