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Business Last Updated: Sep 18, 2019 - 10:52:09 AM

EU Court Decision Will Limit Gazpromís Ability to Pump Gas to Europe Via Nord Stream Route
By Rauf Mammadov, EDM 16/9/19
Sep 17, 2019 - 10:48:19 AM

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A constituent court of the Court of Justice of the European Union has ruled that the Russian state-owned energy giant Gazprom may not use 100 percent of the capacity of OPAL, an onshore, German extension to the Nord Stream natural gas pipeline. Gazprom is expected to appeal the Luxembourg-based EU General Courtís (EGC) decision, which dealt with one of two branches of the OPAL onshore pipeline system (TASS, September 13). The judgment reverses a previous European Commission ruling that had exempted Gazprom from a provision granting non-owners of EU pipelines access.

OPALís western branch carries Russian gas (delivered under the Baltic Sea directly via Nord Stream) to Germany, Czechia (the Czech Republic), Slovakia and beyond through connecting pipeline systems (Opal-gastransport.de, accessed September 16).

The Luxembourg ruling has implications for Gazpromís new Nord Stream Two pipeline, which will also deliver Russian gas to Europe and into onshore pipelines like OPAL. Most of Nord Stream Two has already been built. But holding up its completion is a dispute with Denmark over the pipeline running through Danish waters (see EDM, February 4).

The ruling is also important because of the reasoning behind it. The justices said the main reason for their decision was not to preserve third-party access to pipelines that run through Europe but to maintain the EUís energy-solidarity policy. This opens the door to future litigation based on such policy.

OPAL, whose capacity is 36 billion cubic meters (bcm) of gas a year, starts at Greifswald, Germany, where Nord Stream, which runs under the Baltic Sea from Russia, makes its European landing. OPAL was commissioned in 2011.

In 2016, the European Commission granted German regulatorsí request that Nord Streamís owners, Gazprom and WintershallDea, be exempted from the EUís third-party access rule. This meant the Nord Steam owners could use all of OPALís capacity (Vedomosti, August 3, 2017). But Polandís energy company PGNiG appealed on grounds that the Commission ruling violated the EUís energy-solidarity policy. The EGC, which agreed to hear the case, ordered the third-party provision honored until it decided whether to grant Gazprom a permanent Opal waiver.

Gazprom, in turn, obtained a temporary stay of the third-party rule in 2017, which allowed it to use the OPAL pipelineís full capacity until the courts made a permanent decision. However, Poland appealed that stay, partly on the grounds that third-party pipeline access is a fundamental component of the EU's Third Energy Package policies. It also argued that Gazpromís monopoly of OPAL could impact Polandís energy security because the Russian giant could decide to send less gas through the Yamal-Europe and Brotherhood pipelines, which run from Belarus and Ukraine (respectively) to Poland and beyond.

In 2017, the Luxembourg court ruled against Poland's contention that scrapping the Gazprom waiver was urgent and should be done right away. The justices noted that Ukraineís, Belarusís and the EUís gas transit contracts with Gazprom would expire in 2020 and their supply contracts in 2022ódates that were not that far away (Reuters, July 21, 2017).

Gazprom is now in talks with Ukraineís pipeline company Naftogaz and the EU on new contracts for delivering Russian gas to the continent through Ukraine (see EDM, June 12, 2019). The Russians had hoped that Nord Stream Two would be completed before the current transit contracts expire in 2020, but a delay in its completion means the talks have taken on a new meaning.

The Luxembourg court decision makes Gazpromís position in the negotiations more difficult: If Gazprom is unable to use all of OPALís capacity, it will have to continue sending sizable volumes of gas to the EU through Ukraine or Belarus. The next round of the talks will be later this month (112.UA, September 11).

The EGC ruling also exacerbates a nettlesome European litigation landscape for Gazprom. Naftogaz has filed a number of arbitration cases against Gazprom on the continent, contending that the Russian firm failed to live up to its current Ukrainian gas transit contractsóand that the dereliction has cost Naftohaz billions of dollars. The Ukrainian pipeline operator has convinced arbiters to freeze Gazprom property in Europe as potential settlements of its claims (see EDM, February 4, August 9).

Meanwhile, Gazprom's gas exports to Europe and Turkey declined in the first nine months of 2019. To add insult to injury, an increase in liquefied natural gas exports from Gazpromís Russian rival Novatek are threatening its market share in Europe (see EDM, April 16). Other negative trends are also apparent: notably, Novatek and Rosneftís combined gas sales in Russia have already surpassed Gazpromís, and a poorly performing economy combined with other factors are reducing the latterís revenue further. Gazprom is, thus, looking at multiple serious challenges in the months ahead.

Source:Ocnus.net 2019

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