Energy Alliance

An Agreement between Austria’s OMV and Iran May Change Strategic Power Relations for the European Union

On  Apr. 21, the Iranian Ministry of Oil and and the Austrian oil and gas concern OMV, the leading oil and gas company in central Europe signed three agreements to export natural gas to Europe either through pipeline or as LNG (Liquified Natural Gas). These $30 billion agreements are considered the biggest deal ever between Iran and the European Union.

In a parallel action, the EU and the US signed a Translantic Economic Agreement at the US-EU Summit of Germany’s 6-month Union Presidency held in Washington on May 9, which included a joint agreement on economic security and climate change.

With the strategic importance of the Iranian oil agreements, U.S. officials reacted immediately. A U.S. spokesman  was quoted by the Austrian newswire APA on Apr. 25 as saying that “the news was disquieting.” A senior U.S. diplomat  in Vienna added that his government “completely rejected investment in Iranian gas and oil sector.”

In spite of their traditional alliance through out the post war years, the U.S. and EU have often parted ways on energy issues, affected by differing sources of supply and levels of consumption. The twin energy-related crises of threats to adequate and secure supplies at affordable prices and threats of environmental damage from over-consumption, have heightened political tensions. Soaring energy prices and recent geopolitical conflicts, power shifts and natural disasters have reminded us of the essential role affordable energy plays in economic growth and human development, and of the vulnerability of the global energy system to supply disruption.

“Safeguarding energy supplies is once again at the top of the international policy agenda,” wrote IAEA analysts in the agency’s 2006 World Energy Outlook.  While some predict that future wars will be over access to water resources, it is safe to say that serious disputes or hostilities may arise between states-nations and different blocks for energy, in particular hydrocarbon ones, with the dispute between Russian Federation and Ukraine on Jan. 1, 2006, a case in point.

The May 9 agreement between the U.S. and the EU is part of this effort, listing shared interests as “ensuring secure, affordable, and clean supplies of energy and tackling climate change,” the agreement said. The agreement is considered significant as being an important step forward for the EU in getting America’s expressed cooperation on these joint aims, goals long seen by the US as contradictory.

Bush intensified his support for addressing energy concerns May 30, with a call for a “global goal on emissions.” However many in Europe saw this call as disingenuous, an attempt to hijack the issue of energy security and climate change led by German Chancellor Angela Merkel, in advance of the G8 Summit in Heiligendamm, Germany, June 6-8.

The EU has stated repeatedly that long-term security of supply means not being over-dependent on a few countries. the EU website reports that in 2001, Europe’s gas consumption stood at 425 billion cubic meters and this figure is expected to increase to 736 billion cubic meters in the year 2020.

As a result, Austria and EU officials consider Iran as one of the major sources of supply to meet their energy requirements, according to an Apr. 28 report by the Islamic Republic News Agency (IRNA).

To date, Russia’s Gazprom has been the main supplier of natural gas to Europe. This may have to change. The Austrian concern OMV (Österreichische Mineralöl Verwaltung) predicts that “European gas demand [will] increase considerably in the upcoming two decades,” but also that sufficient gas reserves around Europe are available to meet this expected increased demand.

The only nearby regions with gas reserves not yet connected to European markets are the Caspian region of Central Asia and Iran.

The Nabucco Gas Pipeline project connecting Turkey with Austria via Bulgaria, Romania and Hungry, is one answer to the energy supply challenge and will open up a new supply route for Europe. This pipeline’s length is 3,400 km, starting at the Iran/Turkey borders leading ultimately to Baumgarten (near Vienna) and further on to the borders of Austria and Germany in one direction and Austria and Italy in the other. Estimated investment costs for a complete new pipeline system are estimated by OMV at some 4.6 billion euros.

According to the initial agreement between Austria and Iran, Iran would supply 5 billion cubic meters of natural gas annually, worth between $10-12 billion dollars, to EU member countries through Austria through a pipeline. In a second agreement, Iran would export 2,200,000 metric tons of liquid natural gas to Austria and Europe for 25 years, an agreement alone worth some $18 billion. In a third agreement, ratified between Petro Pars and OMV, the Austrian partner would cooperate on upstream activities of phase 12 of the south pars.

OMV emphasizes that diversification of gas supplies and its routes, and the ensuring the security of supply are the main targets of the Nabucco Project. With its huge hydrocarbon resources and above all as a neighboring country to EU members, Iran certainly has the potential to alleviate a significant portion of EU concerns on the supply of energy in the decades ahead.

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