Germany and Gazprom question need for EU talks on Nord Stream 2

By bne IntelliNews June 15, 2017

A joint EU mandate to discuss the operating rules that would apply to Russia's planned Nord Stream 2 gas pipeline is not necessary, Angela Merkel said on June 15. Russian state-controlled gas giant Gazprom said the same day that it agrees with the German Chancellor.

Merkel and Gazprom were reacting to last week’s statement by the European Commission that asked EU member states for a mandate to negotiate the legal status of the pipeline regarding EU regulations.  The commission’s move appears an attempt to lessen the divisions Nord Stream 2 is creating within the bloc.

The project would double the current 63bn cubic metres capacity of Nord Stream 1, which runs beneath the Baltic Sea directly to Germany. The pipeline would help Russia's professed aim to circumvent Ukraine as a transit state, while Central & Eastern European countries worry it would curtail efforts to secure alternative supplies and deepen already signficant dependence in the region on Russian gas.

Poland and the Baltics are the main objectors regarding that line of concern. Meanwhile, Kyiv stands to lose billions in transit fees.

The Czech Republic stands to benefit from Nord Stream 2 by taking on the role of a regional gas hub. Slovakia has recently signed a deal with Gazprom that would insure its role in transiting Russian gas even if flows through the Ukrainian system are halted. Hungary has long been one of Russia's closest allies in Europe.

However, the new line is supported by Berlin. German companies Uniper and Wintershall are part of a consortium of Western European energy giants that has agreed to finance half of the project's costs of €9.5bn.

Germany and Russia are concerned that if the project is made subject to agreements between Moscow and the EU, its completion might hit obstacles. Alternatively, it could face limits on the volume of gas that can be brought onshore, or demands that some capacity be made available to other gas suppliers.

"I think some legal questions need to be clarified in relation to Nord Stream," admitted Merkel in a news conference in Berlin, according to Reuters. However, she added that as far as she is concerned, "it is an economic project and I don't think we need an extra mandate."

Unsurprisingly, Gazprom is of similar mind. "The project is carried out in line with all norms we already met in the Nord Stream 1," said deputy CEO Alexander Medvedev as he was in the German capital, Russian state-owned newswire TASS reported. He called the European Commission's request to member states for a mandate to negotiate "particularly strange".

The commission said several months ago that it would seek permission from EU states to talk about Nord Stream 2 with Russia. But on top of the fact that the strongest state in the EU supports the project, the bloc has struggled to find a solid legal footing to block Nord Stream 2. The tactic now is to seek to forge an agreement on operating terms with Russia.

“Nord Stream 2 does not contribute to the Energy Union's objectives," commission Vice-President for Energy Union Maros Sefcovic said in a statement.

President of the European Council Donald Tusk - a former Polish prime minister - also recently waded into the discussion recently. He urged the commission to exercise strict regulation of the Russian project on which he has a “negative view”.

Brussels is not without leverage, however. Russian gas exporter Gazprom is fighting to reach an out-of-court settlement with the commission over a competition suit that claims it has abused its market position in CEE for years. Gazprom has proposed to implement measures to address the EU’s concerns, but countries like Poland and Lithuania are pushing to have the Russian supplier fined and forced to reorganise its business.

At the same time, the onshore link to Nord Stream 2 would fall under EU energy market rules. The Opal connector that lands gas from Nord Stream 1 has been limited since the pipeline opened in 2012. However, Brussels recently gave the nod to an application from the German network operator to ease the cap.

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