Monday

24th Sep 2018

Column / Crude World

Nordstream 2: Alternative pipeline facts

  • Under Article 9(1) of the Gas Directive, all new pipeline infrastructure can only be certified if ownership is "unbundled". (Photo: Joffley)

In my previous column, I wrote an analysis on the Nord Stream 2 pipeline, and some of the outstanding issues after the release of the second State of the Energy Union by the European Commission on 1 February.

In response, Sebastian Sass – an EU advisor to Nord Stream 2 – wrote a letter stating that Nord Stream 2 "sets the record straight". In doing so, however, it appears that Sass gave an introduction into the world of alternative pipeline facts.

A pipeline has two ends?

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Sass begins by explaining that a pipeline has two ends; in this case referring to the fact that it is not only Gazprom pushing the project forward, but that there are five other major energy companies from four EU countries involved that have publicly committed to supporting the project.

Indeed, originally that was certainly the case, but Mr. Sass fails to make any mention of the fact that after an objection lodged by the Polish competition authority the proposed joint venture collapsed. At present it remains unclear as to how these other companies will contribute to the project. Giving "support" has no legal or financial bearing on the project, meaning that for the moment Nord Stream 2 is 100 percent controlled by Gazprom.

Compliance with EU law

This brings me to alternative pipeline fact number 2: compliance with EU law. According to Sass it is beyond question that Nord Stream 2 will comply with all applicable EU laws. Interestingly, one of Sass’s colleagues, Jens Müller, earlier appears to have argued that EU law was not applicable to the Nord Stream 2 pipeline. In his reply to my column, Sass states the opposite, which is something I wholeheartedly welcome.

How precisely Nord Stream 2 intends to comply with the law is easily brushed over, however. Sass provides no explanation as to how Nord Stream 2 intends to do so beyond pointing to the presence of a “comprehensive regulatory framework consisting of international conventions, EU laws and national legislation" and the "exceptionally high standards of governance, transparency and environmental responsibility" in the countries along the route of the pipeline.

Problematic for Nord Stream 2 is that under Article 9(1) of the Gas Directive all new infrastructure can only be certified if the ownership of the pipeline is "unbundled". In other words, the transmission system operator has to own the network and cannot also be an undertaking involved in the production or supply of natural gas. Now that Gazprom is the sole owner of the pipeline, it is difficult to see how it can comply with the Directive, since Gazprom would still be both the owner of the pipeline via Nord Stream 2, and a producer and supplier of natural gas.

Towards a low carbon future

Proponents of the Nord Stream 2 pipeline consistently point to falling production levels of natural gas in Europe as a rationale for the project. These falling production levels are beyond doubt.

However, on the demand side, things are by no means certain. Compared to a decade ago, gas demand in Europe is in decline and achievements in renewable energy and energy efficiency hold significance.

When looking at the discussions currently taking place in my own country, the Netherlands, every political party wants to decrease our dependency on natural gas.

Importantly, these discussions are not only about reducing the production levels in the province of Groningen, due to the presence of earthquakes. Rather, discussions are on how to phase out natural gas in our energy supply altogether, in an accelerated manner.

If the Energy Union’s aim is to propel the EU towards a low-carbon economy and diversify sources of supply, then these are the kinds of discussions that should be taking place.

This does not mean that natural gas will not have any role to play in the future. On the contrary, gas can still have a role to play in Europe, but much more as a back-up power source to compensate the intermittent nature of renewable energy or to connect markets that bring in alternative suppliers in situations where markets suffer from a lack of competition, such as in Southeastern Europe.

Political motivations?

Sass’s reply to my column ends with the suggestion that my commentary gives priority to unsubstantiated allegations and political motivations. This, coming from a lobbyist who has a material interest in the project and who works for a company that hired former German chancellor Gerhard Schroeder as chairman of its board, is somewhat ironic. Last time I checked, Schroeder did not have a PhD in pipeline engineering.

Personally, I am not the least bit interested in the Nord Stream 2 pipeline, nor am I in any way politically affiliated, nor do I stand to gain should the project fail.

What I care about is that the rules and regulations underpinning the rule of law in the EU are complied with in the interest of our common energy security and that we base our choices for our future energy supply on solid reasoning instead of alternative pipeline facts.

The Crude World monthly column on Eurasian (energy) security and power politics in Europe’s eastern neighbourhood is written by Sijbren de Jong, a strategic analyst for The Hague Centre for Strategic Studies (HCSS), specialising in Eurasian (energy) security and the EU’s relations with Russia and the former Soviet Union.

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