What has just happened?
Gazprom have stated that they will sue Germany over the decision not to exempt their gas pipeline from EU competition standards under the EU Third Energy Package. The EU package prohibits energy monopolies and the supplier of gas from also owning the pipeline. This is intended to improve the functioning of the internal energy market and resolve certain structural problems.[1]
What does this mean?
This matter concerns the Russian company’s Nord Stream 2 project, which seeks to secure energy security in mainland Europe through an offshore natural gas pipeline across the Baltic Sea.[2] In construction, Gazprom sought to exploit a loophole in this package that permits control of a pipeline and its requisite gas providing that the pipeline is situated, or registered, abroad. This led to the decision to construct the pipeline across the Baltic Sea, through the territorial waters of Russia, Finland, Sweden, Denmark, and Germany.
However, the European Commission attempted to extinguish this loophole in 2017 and European Parliament subsequently voted to include offshore infrastructure in the package’s restrictions through an amended Gas Directive (2017/0294).[3] Whilst Gazprom sought exemption in 2019, this was annulled in Case T-883/16 Poland v Commission[4] over concerns that it would undermine energy security.
Gazprom is now expected to lodge an appeal in the Supreme Court in Dusseldorf during the coming weeks.[5]
How does it impact the legal sector?
Nord Stream is expected to be launched at the end of 2020 and the project is, to date, 93% complete. The amended Gas Directive now requires rules that govern the EU’s internal gas market apply to transmission pipelines between a member state and a third-party country, including the border and territorial sea. Following amendments, Gazprom must provide “third-party access, non-discriminatory practices and transparency.”[6] Ultimately, this may force Gazprom to release fifty percent of their pipeline capacity to independent gas suppliers in Russia and the decision presents substantial uncertainty to a project costing over €10 billion.[7]
This saga is of high importance to the energy sector, and clearly evidences the political implications paired with energy sourcing, in conjunction with the well-published fiscal benefits.
In all likelihood, the Supreme Court in Dusseldorf will redirect the appeal to the European Court of Justice. Gazprom’s assertation is that the decision not to waive the regulations is discriminatory and opposed to the constitutional guarantees of the Basic Law, as reported by The Telegraph. [8] However, the real divisive issue is that Nord Stream 2 runs contrary to the European Union’s geo-political strategy of achieving an energy union. Member States are increasingly concerned by the Union’s over-reliance on Russian gas and the consequently monopolised energy market. It is contended that the Nord Stream 2 project will impede the development of an open and diversified gas supply to the EU.
This issue encapsulates tightrope that the law must navigate between promoting commerce and curtailing abuse of competition. Whilst we await Gazprom’s appeal, it appears that the matter is far from over. Notably, in the midst of COVID-19, there is an increasing trend towards deglobalisation and resilience strategies. It remains to be seen whether this will influence the outcome for Gazprom.
Written by Dominic White
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References:
[1] European Commission, ‘Third energy package’ <https://ec.europa.eu/energy/topics/markets-and-consumers/marketlegislation/third-energy-package_en>.
[2] Nord Stream, ‘Secure Energy for Europe’ < https://www.nord-stream.com/>
[3] The European Parliament, ‘Directive of the European Parliament And Of The Council amending Directive 2009/73/EC concerning common rules for the internal market in natural gas’ <https://data.consilium.europa.eu/doc/document/PE-58-2019INIT/en/pdf>.
[4] General Court of the European Union, ‘The General Court annuls the Commission decision approving the modification of the exemption regime for the operation of the OPAL gas pipeline’ <https://curia.europa.eu/jcms/upload/docs/application/pdf/201909/cp190107en.pdf>.
[5] Ed Clowes, ‘Gazprom sues Germany over Nord Stream 2 decision’ (The Telegraph, 22 June 2020).
[6] Zoya Burbeza, ‘The Future of Nord Stream 2’ <https://zaiwalla.co.uk/ru/news/zoya-burbeza-examines-the-future-of-nordstream-2>.
[7] Economic Sensitivity Analysis of the Alternatives to the Offshore Pipeline, ‘The Real Financial Cost of Nord Stream 2’ <https://pulaski.pl/wp-content/uploads/2019/05/Raport_NordStream_TS-1.pdf>.
[8] Ed Clowes, ‘Gazprom sues Germany over Nord Stream 2 decision’ (The Telegraph, 22 June 2020).
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.