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Nabucco Will Not Be Built If Demand Is Too Low, OMV Says

VIENNA (Reuters) -- The Nabucco gas pipeline will not be built if an open season bidding process for capacity this year shows demand is too low, an executive of Austria's OMV said today, adding that demand looked strong.

Besides OMV, Bulgaria's Bulgargaz, Turkey's Botas, Germany's RWE, Hungary's MOL, and Romania's Transgaz are partners in the EU-backed project, which would reduce Europe's reliance on Russian gas.

The Vienna-based Nabucco consortium has been very upbeat on demand for the pipeline, but Werner Auli, OMV's head of oil and gas, said it was up to the market to decide whether the project was commercially viable and if it should go ahead.

"We will start the open season process this year, then we will get enough demand or not," Auli told an Energy Exchange gas conference in Vienna.

"If not, Nabucco will not be built, this is very simple. We are a commercial company, we are not an institution. If the demand is not there, we will not build the pipeline," he said.

Auli said he expected that the open season process, where companies make bids for the pipeline's capacity, would show good results. The process should take place from around July to October this year with a final decision on investment by the end of 2010.

"We still have good indication that there is a lot of demand there," Auli later told reporters.

The pipeline, skirting Russian soil, would bring gas from the Middle East and the Caspian region to Europe. Russian gas pipeline export monopoly Gazprom has a rival project, South Stream.

Supply And Demand

A Nabucco survey of potential customers in 2008 showed demand for capacity was expected to be two to three times the planned 31 billion cubic meters (bcm).

"I think the survey is still valid. There is a lot of interest from possible customers," Auli said.

But analysts have questioned whether future gas demand will be high enough to make the 7.9 billion euro ($11 billion) project worthwhile.

The International Energy Agency said in November that the global gas market is likely to remain oversupplied until 2015 and rise by an average of 1.5 percent per year in the period to 2030.

Analysts have also voiced doubts about whether supplies for Nabucco will be secured in time, but Auli said this was not an issue thanks to the potential of countries such as Iraq.

Auli said 8-10 bcm of gas from Iraq's Kurdistan region should be ready to fill the first phase of the pipeline from 2015, the first full year the pipeline is operational.

Nabucco said in October it expects a further 8 bcm from Azerbaijan starting from 2015 or 2016. The rest of the gas in the later stages of the project is also likely to come from these sources.

Nabucco's manager for Austria, Johann Gallistl, said a tender for some 2 million tons of steel to build the pipeline would open around May and that there had already been a lot of interest from major steel companies.