Poland looks for new ways to baffle Nord Stream 2 pipeline

Poland looks for new ways to baffle Nord Stream 2 pipeline
By bne IntelliNews October 20, 2017

Poland is reportedly looking for new ways of tackling the Nord Stream 2 pipeline being built by Russian gas giant Gazprom. In the latest legal report submitted to the European Commission, the Polish Ministry of Foreign Affairs argues that the Baltic Sea part of the pipeline has to comply with the Third Energy Package, Vedomosti daily said on October 19 citing the document.

Previously the EC was reported to have lost leverage in negotiations with Gazprom, as its legal commission concluded that the commission cannot represent the EU in negotiations on Nord Stream

EC lawyers rejected the claim that the EC could conduct negotiations with Russia on the Nord Stream-2 project on its own authority, as the offshore part of the Nord Stream-2 pipeline is regulated by maritime international law, while the onshore part is covered by Russian and German legislation.

The analysts predicted, however, that opponents of the project such as Poland and Denmark could drag the legal battle with Gazprom into their territorial waters in the Baltic Sea.

Now Poland claims that the territorial waters of EU member crossed by the pipeline are the "internal territory of the European Union". Nord Stream 2 is set to cross the territorial waters of Poland, Germany, as well as special economic zones of Finland and Sweden.

Acceptance of this argument would mean that all the relevant EU regulations would have to apply to the pipeline, including the Third Energy Package, while precedents exist in applying such regulation from a part of the pipeline to its entirety, the Polish report argues.

The main provisions of the Third Energy Package menacing Gazprom are the requirement to separate the supplies and transportation of natural gas, as well as allowing third parties to at least 50% of the capacity of the transportation infrastructure.

The €9.5bn pipeline has yet to receive final EU approval to be built by Russian natural gas export monopoly Gazprom from northwestern Russia to Germany via the Baltic Sea. 

The analysts and lawyers surveyed by Vedomosti on the issue note that the conclusions of the Polish and EC's legal teams are so cardinally different, that the dispute on how to regulate Nord Stream might as well land in court.

A negative decision and the application of the Third Energy Package to the pipeline holds another danger for Gazprom, as this could push the Kremlin to cancel its pipeline exports monopoly and have other Russian companies compete for the remaining 50% of the pipeline's capacity, Mikhali Kruhitin of RusEnergy told the daily. Gazprom maintains a monopoly over Russian gas exports (apart from LNG), but the other leading gas companies of Novtek and Rosneft have been lobbying for years for a piece of this pie.

Denmark might also create unforeseen obstacles to the pipeline as its government is reportedly prepared a bill allowing the Ministry of Foreign Affairs to ban the construction of new pipelines in its territorial waters.

It is also still not clear how the provisions of the new US sanctions, that can potentially target Russian export pipelines, will influence the project. In July, Gazprom warned investors that its major projects like Nord Stream 2 and the Turkish Stream pipelines could be "delayed or prevented from being finished" by the new sanctions.

Currently Gazprom is the only shareholder of the Nord Stream 2 pipeline, but western energy majors including Shell, OMV, Engie, Uniper, and Wintershall have all signed a project financing agreement in April with the Russian company. It was expected that the companies would bridge finance up to 70% of the pipeline's cost or €6.65bn until 2019 at 6% interest. 

Most recently this commitment was questioned by the head of the Austrian oil and gas company OMV Rainer Seele, who said that banks in Europe and US are rethinking the deal due to the new US sanctions.