Wednesday

26th Jun 2019

Opinion

Nord Stream 2: Gazprom's desperate moves

  • Nord Stream 2 has reacted to the prospect of the application of the gas directive to its pipeline with increasingly desperate strategies to avoid application of that law (Photo: Nord Stream 2 / Axel Schmidt)

In a recent article, Exploring the limits of EU's unbelievable behaviour on Nord Stream 2, professors Kim Talus and Leigh Hancher express amazement at the application of EU energy law to Nord Stream 2.

They argue that the application of the amendment to the gas directive which formally applies the Gas Directive 2009 to import pipelines constitutes discriminatory treatment of the pipeline.

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However, on closer examination, Gazprom's argument that the application of the directive is discriminatory and retroactive, looks more like a desperate grasping at legal straws.

The amendment to the gas directive which formally applied the Gas Directive 2009 to import pipelines came into force on the 23rd May.

Faced with 24 member states prepared to support the amendment, Germany and its small group of allies, without the blocking minority numbers were forced to back down and accept in substance the amendment to the directive as drafted by the European Commission, with some convoluted language to save face.

Gazprom now faces the full application of the gas directive.

As it 100 percent owns the pipeline company Nord Stream 2 will be required to unbundle the pipeline. It can provide the gas or own the pipeline but not both.

It will have to permit competitors to access the pipeline and accept as a a non-EU owned pipeline a security of supply certification assessment process.

Nord Stream 2 has reacted to the prospect of the application of the Gas Directive to its pipeline with increasingly desperate strategies to avoid application of that law.

One approach was to suggest that the pipeline could be run by two separate companies, one in German territorial waters and one outside such waters and thereby argue that EU law only applied to the company that was in the territorial waters.

However, to treat the pipeline in that manner would be an exercise in artificial legal formalism which would never stand a challenge before the European Court of Justice.

It is clearly physically one pipeline, designed as such, and for which permits have been applied on that basis, and funding obtained.

A further and perhaps even more desperate idea that recently came from Nord Stream 2 was to avoid the full application of the gas directive by arguing that the pipeline had been completed by May 23.

Pipelines completed before the May 23 are subject to a less onerous legal regime. Nord Stream 2 advocates argued that the pipelines that have been constructed in German territorial waters by May 23.

Therefore they argued that as a result "completion" has taken place in German waters and as result the pipeline has been "completed" in EU territory.

This is an ingenious argument which will not be however be able to be credibly stood up in Luxembourg at the European Court of Justice.

Latest desperate measure

The argument deployed by Gazprom and by professors Talus and Hancher is that the EU is in breach of the investment treaty, the Energy Charter Treaty.

They argue that Nord Stream 2 is the only pipeline where a final investment decision has been made and significant capital has been committed but cannot benefit from the derogation (and consequent weaker legal regime) that applies to existing pipelines.

What this overlooks is that a final investment decision in the context of Nord Stream 2, has very little credibility.

Only a responsible investor can begin to argue that legitimate expectations exist. Nord Stream 2 is not a responsible investor.

Currently Nord Stream 2 does not have all its route permits in place. It has no permit which would allow it to proceed to build the pipeline through the Danish waters.

Furthermore, Nord Stream 2 is in fact engaged in litigation with the Danish Energy Agency as to the most appropriate route to take for the pipeline.

Despite the lack of permits and the litigation Nord Stream 2 began constructing the pipeline.

A further problem for any ECT claim is that the EU has already applied the gas directive to import pipelines, notably Yamal and South Stream.

This reality further erodes the argument that the EU has created a retroactive legal regime, and Nord Stream 2 was unaware of the prospect that it could made be subject to the gas directive.

The chances therefore of being successful with an ECT investor claim against the EU are somewhat limited.

The argument is really back to front. Gazprom has been the beneficiary of discrimination in its favour over the last decade.

While Nord Stream 1 and its connecting were not subject to EU law, Yamal and South Stream were. The amendment to the Gas Directive now ensures a level playing field for all energy actors wherever they are from.

Author bio

Dr Alan Riley is a senior fellow at the Atlantic Council in Washington DC and a senior fellow at the Institute for Statecraft in London. He was previously an advisor to the Ukrainian gas firm Naftogaz and Polish energy firm PGNIG.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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