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15th Aug 2022

EU court points to future resurrection of Russian gas pipe

  • Russian firm Gazprom owns Nord Stream 2 via a subsidiary (Photo: gazprom.com)
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Russia has won the right to challenge EU laws meant to stop dirty tricks in gas markets, at the same time as Moscow wages gas wars against Europe.

The EU's top tribunal in Luxembourg ruled on Tuesday (12 July) that Russia's bid to secure exemptions from the EU laws for its Nord Stream 2 gas pipeline was legally admissible, paving the way for further court action.

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Russia completed the Nord Stream 2 gas pipeline to Germany before invading Ukraine in February, but Berlin subsequently mothballed the €10bn structure in response.

EU laws say gas supplies and pipeline operations cannot be handled by the same firms (a clause called "unbundling") because that creates too much risk of market manipulation.

But Nord Stream 2 AG, the Russian-owned consortium behind the new pipeline, had sued for a derogation from the EU regime.

It remains to be seen if Nord Stream 2 becomes operational after the Ukraine war ends.

But Tuesday's verdict comes amid a Russian push to use gas cut-offs to create pressure for EU sanctions relief — exactly the type of behaviour the unbundling laws are meant to prevent.

Gas prices in the Netherlands and Germany are today 800 percent and 700 percent higher, respectively, than last year due, in part, to Russia's cut-offs.

Deliveries to Germany via the existing Nord Stream 1 pipeline, which was built before the EU unbundling laws came into effect, plunged by 60 percent in June. Flows via Belarus and Ukraine to central Europe have also plummeted.

And Russia's full shut-down of Nord Stream 1 for "maintenance" on Monday has raised fears it won't restart pumping gas until Moscow gets concessions from Berlin.

The Russian moves have already had knock-on effects.

Germany has been reverse-pumping Russian gas to Poland via the Yamal pipeline after Russia completely cut off Poland, but the reverse flows dropped by 30 percent from Monday to Tuesday, Reuters reports.

Poland and neighbouring Slovakia have filled up their storage tanks for winter, unlike Germany.

"There is so much gas in storage owned by Slovak firms, in Slovak territory, that even if not a single cubic metre comes from Russia as of today, we are saturated until the end of March 2023," Slovak economy minister Richard Sulik said Tuesday.

Other countries are also making new arrangements to share gas if worse comes to worst.

"We are in advanced discussions about a significant expansion of the capacity of the interconnector linking the natural gas networks of Romania and Hungary," Hungarian foreign minister Péter Szijjártó said also on Tuesday.

But despite the efforts, Polish firm Grupa Azoty, a chemicals and fertiliser maker, became the first major European firm to announce cut-backs in production due to gas market volatility, in a sign of what is likely to come.

German fears

German business confidence also plunged to levels last seen at the start of the pandemic lockdowns, according to the ZEW economic research institute.

"Fear has taken the wheel," Alexander Krueger, chief economist at the Hauck Aufhaeuser Lampe bank in Germany, told Reuters.

And a total gas-cut off could see the German economy shrink by more than 12 percent this year — costing millions of jobs, economists predict.

EU states have discussed introducing a price-cap on energy, joint gas purchases, and a project to bring in gas from Israel and Egypt.

But these developments are moving more slowly than Russia's wars.

There was no timeframe in mind for the joint buying, the European Commission said Tuesday. The price-cap idea was "very complicated" and work was still "continuing", it added. The Mediterranean pipeline project's feasibility study was also "ongoing", it said.

The EU Commission noted that imports of liquid gas were 70 percent higher than in the first half of last year. US exports of liquid gas to Europe had also tripled, in what amounted to "clear progress in terms of our diversification", the commission said.

But for all that, the latest survey by German pollster Deutschlandtrend showed a nine-point increase (rising to 38 percent) in the number of Germans who want to be softer on Russia if energy costs keep climbing.

An MP from Germany's far-right and pro-Russian AfD party has bought a bus to offer homeless people heating in winter — a charity stunt showing how the energy crisis can give political ammunition to Russia's friends.

Germany, earlier this week, intervened to let Russia take delivery of a turbine for Nord Stream 1 from Canada in a derogation from Western sanctions.

And German chancellor Olaf Scholz said last week the EU should offer Russia sanctions relief in return for de-escalation in Ukraine, indicating Berlin is keen to repair ties with Moscow after the war and that Nord Stream 2 might have a future after all.

"The transfer of the Nord Stream 1 turbine will allow Russia to continue to use energy as a tool of hybrid warfare against Europe," the Ukrainian foreign ministry said.

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