Nabucco pipeline failure unlikely to hurt Austria's OMV: Bank

27 June 2013 15:08  [Source: ICIS news]

LONDON (ICIS)--The failure of the Nabucco Asia-to-Europe gas pipeline infrastructure project may turn out to be a positive outcome for major Austrian shareholder OMV, an investment bank said on Thursday.

The scrapping of Nabucco was also unlikely to hurt the strategic gas supply diversification ambitions of central and eastern Europe (CEE), Prague-based WOOD & Company, added.

Austrian oil, gas and petrochemicals group OMV on Wednesday declared that Nabucco – a decade in the planning – was essentially over, following a decision by the Azerbaijan-based Shah Deniz consortium not to award the Nabucco Gas Pipeline International (NGPI) consortium the export rights to gas NGPI planned to transport to Austria's Baumgarten gas hub.

“Overall, we feel [the failure of Nabucco] is somewhat positive for OMV,” said Robert Rethy, an analyst at WOOD & Company.

That conclusion stands despite the probability that OMV would have to write off most of the Nabucco investment it had capitalised so far, amounting to an estimated €60m-70m ($78m-91m), he added.

“No Nabucco fits the current [reformulated company] strategy better, in our view,” Rethy said.

“Clearly no Nabucco means OMV has to invest – according to our rough estimates – some €1bn less in the next four-to-five years in a non-core, low-return business,” he added.

Descibing Nabucco as “an inheritance from an ill-fated, overly ambitious gas and power strategy for the company’s core markets”, Rethy said OMV's current strategy – adjusted in September 2011, with plans to divest up to €1bn of assets by 2014 – would not be particularly impacted by the loss of it .

Looking at the implications of Nabucco's failure for CEE, Rethy said he saw “no major strategic setback for the gas supply of the region in the longer run”.

“Nabucco would have brought in gas from a new source – the Caspian Sea – providing some additional security for the region and some leverage when it came to supply talks with [Russian oil and gas giant] Gazprom,” the analyst said.

“However, several alternative supply options – more and more pipeline connections, LNG [liquefied natural gas] terminals and some promising local production opportunities – exist, which may increase the security of the supply of CEE in the medium term,” he added.

The demise of Nabucco was also good news for Gazprom's 'southern corridor' gas pipeline supply investment – South Stream – which would reach the EU via a route across the Black Sea, Bulgaria, Serbia and Hungary, with several spurs under consideration, WOOD & Company added.

Analysts anticipate that the Shah Deniz consortium, whose partners include the State Oil Company of the Azerbaijan Republic (SOCAR) and the UK’s BP, will award on 28 June the Shah Deniz II export rights to the Trans Adriatic Pipeline (TAP) project – Nabucco's rival.

Switzerland-based TAP aims to transport Shah Deniz II gas to southern Italy via a route across Greece, Albania and the Adriatic Sea.

It is owned by Switzerland's Axpo (42.5%), Norway's Statoil (42.5%) and Germany's E.ON (15%).

($1 = €0.77)


By: Will Conroy
+44 20 8652 3214



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