Arbitration Court Awards OMV 230 Million Euros in Dispute with Gazprom
A significant legal victory for OMV: the Austrian energy group has successfully concluded arbitration proceedings against Gazprom Export under the rules of the International Chamber of Commerce (ICC).
It has now become less terrifying to think of Austria not receiving Russian gas. / Picture: © Wikimedia Commons / DanielZanetti / CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)
The arbitration tribunal awarded OMV damages of 230 million euros, including interest and costs. The background to the proceedings was irregular gas deliveries and the complete cessation of deliveries to Germany in September 2022. OMV initiated the proceedings at the beginning of 2023 after the delivery difficulties had led to considerable financial losses.
OMV plans to offset the amount awarded directly against payment obligations from the Austrian supply contract with Gazprom Export. However, this could lead to a suspension of Gazprom's gas deliveries. The company emphasized that it is well prepared: “We can ensure the contractually guaranteed gas volumes even in the event of a possible interruption in supply by Gazprom Export.”
#OMV successfully receives arbitral award in relation to its German gas supplies from Gazprom Export.
— OMV Group (@omv) November 13, 2024
The offsetting will be implemented immediately and is intended to help offset the financial losses from the supply difficulties in 2022. OMV expects this to significantly increase the adjusted CCS operating result and operating cash flow. At the same time, OMV is aware of the potential risks. If Gazprom stops deliveries in response to this decision, short-term hedging losses could occur. However, according to the company, these would be significantly outweighed by the positive effects of the damages awarded.
Opportunity to exit the contract?
A delivery stop by Gazprom could offer OMV the opportunity to get out of the unpopular long-term supply contract with the Russian company, which runs until 2040. Back in July, OMV CEO Alfred Stern declared that his company was no longer dependent on Russian gas. “We have completely eliminated our dependence on Gazprom,” said Stern. Should there actually be a supply freeze, this would be an opportunity for OMV to permanently end its supply relationship with Gazprom.
There is also the possibility of an end to gas transit through Ukraine from 2025. Ukraine has already announced that it will not extend the expiring transit contract with Russia. This would make the transportation of Russian gas through Ukraine impossible and could mean the end of Russian gas imports for OMV. However, OMV is prepared for this thanks to its strategic diversification.
Reactions from politics and business
The arbitration court's decision also met with a political response, as reported by ORF. Climate Protection Minister Leonore Gewessler described the decision as “pleasing and trend-setting”. She emphasized that Austria could manage without Russian gas but warned of possible short-term price increases. “We must continue to work on diversifying our energy supply and becoming independent of Russian gas,” explained Gewessler.
The energy regulator E-Control was optimistic. “The gas supply for the coming winter is secure,” said E-Control board member Alfons Haber. The filling level quotas of the storage facilities in Austria are currently over 90 percent and alternative routes such as LNG imports via Germany and Italy are available. Other EU countries are now also less dependent on Russian gas, which further increases the security of supply.
Price development and market consequences
In the short term, a supply freeze by Gazprom could lead to an increase in gas prices. Studies assume a price jump of up to 20 percent. Nevertheless, supplies will remain stable as European storage facilities are well-filled. Mild temperatures and a decline in industrial demand have reduced gas consumption this year. At the same time, European gas supplies are increasingly being secured by alternative suppliers such as the USA or Norway.
A look at the figures shows: that Russian gas accounted for 86 percent of Austrian gas imports in September 2024. However, according to a recent study by the Energy Agency and E-Control, the gas supply for the next two winters would not be at risk even in the event of a sudden supply disruption. Additional LNG imports and strategic storage reserves can compensate for any shortages.
Significance for the energy transition
OMV's legal victory over Gazprom marks an important step towards European energy independence. The developments could not only herald the end of decades of dependence on Russian gas but also accelerate the transformation of the energy supply towards more sustainable and diversified sources. OMV emphasizes that its own gas production in Norway and long-term contracts with alternative suppliers form a stable basis for the future.
Experts agree that Austria is not only well prepared for future challenges with these measures but is also making an important contribution to European energy security. The coming months will show how the relationship between OMV and Gazprom will develop and what impact this will have on the European energy market.