Friday

15th Sep 2017

EU drafts tough conditions for Russia pipeline

  • Gazprom facility in the Yamal Peninsula, in northern Russia (Photo: gazprom.com)

The European Commission has drawn up plans to ensure that a new Russia-Germany gas pipeline - Nord Stream 2 - does not reshape EU energy markets for Russia's strategic gain.

But the draft plan, a classified 10-page document seen by EUobserver, will only take effect if EU states give the green light, amid Germany's likely preference for handling Nord Stream 2 talks with Russia without EU involvement.

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  • Energy commissioner Maros Sefcovic likely to lead potential talks with Russia (Photo: ec.europa.eu)

The plan calls for an EU Council decision "authorising the opening of negotiations on an agreement between the European Union and the Russian Federation on the operation of the Nord Stream 2 pipeline".

It says the agreement is to "ensure a coherent regulatory framework contributing to market functioning and security of supply".

It also says the Commission should be the "head of the Union's negotiating team", but that it would conduct the Russia talks "in consultation" with "a special committee" of EU states' officials.

In what is likely to feel like poison in Russia's ear, the 10-page paper insists, in an annex, that Nord Stream 2 should abide by EU laws on "unbundling" and "third party access".

The unbundling law would force Russian state firm Gazprom, which owns both the gas and the future pipe, to cede control of Nord Stream 2 to an "independent … operator" in order to "avoid conflict of interests and to enhance competition".

The third-party law would force Gazprom to allocate capacity on Nord Stream 2 to EU competitors "via regular transparent auctions" to prevent "market foreclosure" - a scenario in which Gazprom cuts off EU clients from gas supplies for financial or political motives.

The same demands were so toxic to Russia that they led it to abandon a pipeline project with Bulgaria, called South Stream, three years ago.

But the Commission annex adds a further proviso - that the Nord Stream 2 deal "should include appropriate measures" to ensure "sustainable long-term gas transit after 2019 along a number of existing supply routes, notably via Ukraine".

It says those measures should also ensure that central and eastern European EU states are still able to "open up their gas markets" and "diversify their gas supplies" after Nord Stream 2 comes online in two years' time.

The EU imports most of its Russian gas via Ukraine/Slovakia, Germany (the Nord Stream 1 pipeline), and Belarus/Poland.

But if Nord Stream 2 is built, 80 percent of Russia's gas would come via Germany, making Ukraine's pipelines obsolete at a time when it is trying to align itself with the West, and "sharply" reducing gas supplies via Poland, one of Russia's enemies in Europe.

"Current transit routes for Russian gas could to a large extent be replaced by a single dominant gas transportation corridor from Russia to Germany," the Commission document said.

It said EU states such as Hungary, Poland, and Slovakia were building new infrastructure to enable them to import gas from western EU countries in order to reduce dependence on Russia.

But it said that if western states were fed more Russian gas via Nord Stream 2 it would "undermine" that effort to "diversify supply sources".

It added that if Gazprom had a monopoly on operating Nord Stream 2 it would also "hamper the process of creating an open gas market with competitive prices" in the EU.

Legal void?

The new pipeline is to go under the Baltic Sea from Russia to Germany via the economic zones of Finland and Sweden and via Denmark's territorial waters.

The Nord Stream 2 consortium, a Swiss-based Gazprom vehicle, has said EU law, such as that on "unbundling", does not apply to the pipeline's offshore part.

The Commission's "legal analysis" corroborated this, saying "neither the EU nor its member states could claim to have jurisdiction on the part of an offshore pipeline outside their territory".

But it added that unless the EU and Russia negotiated a "specific regulatory regime" the pipeline would not be "viable" because it would operate either in a "legal void" or under two "different" and "contradictory" legal regimes - the EU's and Russia's.

An EU source said member states would shortly hold a second round of talks on the Commission's ideas in a Council "working group" - a meeting of mid-ranking member states' officials in Brussels.

The source said it was not yet clear if the decision to approve the Commission's draft mandate for Nord Stream 2 negotiations would be made by unanimity or by a majority vote.

The first time the Commission put forward its ideas, in June, 13 EU states voiced support, but the German official in the room declined to speak.

The German business lobby and the centre-left SPD party in Germany's ruling coalition back Nord Stream 2 and would be unlikely to want the Commission to put obstacles in its path.

The CDU/CSU party of chancellor Angela Merkel contains many Nord Stream 2 advocates, but also adversaries, such as Norbert Roettgen, the head of the Bundestag's foreign relations committee, and Manfred Weber, Germany's top MEP in Brussels.

Commenting on Merkel's views, Reinhard Buetikofer, an MEP from Germany's Green party, which opposes the pipeline, told EUobserver on Thursday (14 September): "The chancellor has done everything she could to dodge the issue politically. She has never expressed support for the project, instead she argues that it's a merely economic project that doesn't necessitate a political stance on her part."

The Commission initiative comes amid a US threat to impose fines on Nord Stream 2 investors, which could pose problems for putting together the €9.5 billion it would cost to build.

Russian trolling

The pipeline's strategic importance for Russia was highlighted when Russian foreign minister Sergei Lavrov recently showed interest in the fine print of the EU's deliberations.

He said in Moscow on 1 September: "There's an official document from the European Commission's legal service that this project in no way violates the European Union's existing rules ... the European Commission however says: 'Well, yes, our legal service said that, but we think the other way'."

If Lavrov's comments referred to the "legal analysis" in the Commission's draft mandate, they distorted its content by excluding the point on the non-viability of a "legal void".

Lavrov's remarks also trolled EU officials by showcasing that he had access to a classified text.

The 10-page Commission document was marked "EU Restricted".

Restricted texts, according to EU guidelines, could be "disadvantageous" to EU interests if they got out. They could also "adversely affect" diplomatic relations, "distress" individuals, or "facilitate" crime or "improper gain."

Nord Stream 2: Business unusual

Neither sanctions, EU law nor politics can stop the Nord Stream 2 gas pipeline from being built, its small army of European lobbyists has said.

EU fixes own mistake on 'confusing' energy labels

UPDATED: MEPs approved a new system to inform consumers about the energy efficiency of products. The most important change is abolishing the most recent change to a scale that goes up to A+++.

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