German Officials Reportedly Suggest Selling Nord Stream 2 to Dodge Legal Snag Limiting Its Capacity

Nord Stream 2 AG, the Gazprom-owned, Swiss-registered company building the almost-finished Nord Stream 2 gas pipeline, earlier lost a court case in Germany that could have excluded it from the EU’s Gas Directive, a set of rules on the sale and transport of gas into the EU adopted in 2019.

Nord Stream 2 could dodge the legal ruling that potentially limits it to using just half of the pipeline's capacity if ownership of the energy project were to be sold, suggested German officials, according to the Frankfurter Allgemeine Zeitung (FAZ), citing German officials.

The near-completed project set to carry 55 billion cubic metres of gas annually from Russia directly to Germany across the Baltic Sea, bypassing Ukraine, recently hit a snag after the German high court in Dusseldorf ruled the pipeline can't be exempted from the provisions of the amended Third Energy Package as its operator demanded.

FILE PHOTO: Workers are seen at the construction site of the Nord Stream 2 gas pipeline, near the town of Kingisepp, Leningrad region, Russia, June 5, 2019

© REUTERS / Anton Vaganov

The Swiss-registered company building the mega gas pipeline had sought an exclusion from the EU’s Gas Directive, a set of antimonopoly rules adopted in 2019 ostensibly designed to boost competition in Europe’s gas market. They previously only applied to sales of gas inside the EU, but in 2019 were expanded to cover newly built pipelines entering EU territory from non-EU countries. The rules require the so-called “unbundling” of the production, transport and sale of gas into the EU, whereby one company cannot exclusively use its own pipeline to transport its own gas.

Unless an appeal is granted, Nord Stream 2 will have to meet the three core conditions of the EU rules, writes the outlet - to grant other gas suppliers access to the pipeline, to only charge the prices approved by the network agency for transit, and to strictly separate the operation of the pipeline from the gas delivery itself.
While the first two points may be dismissed as a “formality”, says the outlet, the most tricky issue could be the separation of pipeline operation and gas delivery.

A road sign directs traffic towards the Nord Stream 2 gas line landfall facility entrance in Lubmin, Germany, September 10, 2020.

© REUTERS / Hannibal Hanschke

Amid ongoing litigation and arbitration proceedings regarding the 2019 amendments to the European Union Gas Directive, as a precautionary measure, Nord Stream 2 AG applied to the German Federal Network Agency (Bundesnetzagentur –BNetzA) on 11 June for proactive certification as an independent transport-system operator. The aim was to meet the unbundling requirements by separating the pipeline operations from the parent company in terms of accounting and operations.

The network agency has four months to check this as soon as all the necessary documents are available, which is not yet the case, writes FAZ. According to the cited German officials, there is no getting around the issue, and selling ownership of the pipeline may be the only option.

‘Discriminatory Effect’

Regarding the German court ruling, Nord Stream 2 AG said it disagrees with it and will announce further action in "a timely manner."

“The rejection of the Nord Stream 2 bid for exemption showcases the discriminatory effect of the amended EU Gas Directive,” it stated.

In 2017, the European Commission proposed amending the Third Energy Package, regulating the use, operation, and ownership of gas pipelines within the EU, so that it would apply to foreign pipelines entering the bloc's territory. In February 2019, after extensive negotiations, European nations adopted the amendment that went into effect in July 2019. Any foreign pipeline entering EU territory and completed before that date would be exempt from forcing its owner to either provide 50 percent of the pipeline's capacity to third parties or to sell ownership of the EU portion of the pipe.

Nord Stream 2 AG claims that by finalising the investments in Nord Stream 2 by that time, the company had "finished" the pipeline before the amendment went into force.

Gazprom, one of the co-owners of the Nord Stream 2 pipeline, is the sole company legally permitted to sell Russian natural gas abroad and one of the few allowed to export liquefied natural gas.

The implementation of Nord Stream 2 is being financed by the Russian energy giant Gazprom, Germany's Uniper and Wintershall, as well as France's Engie, Austria's OMV, and the UK-Dutch concern Royal Dutch Shell.

According to Russian economist Andrei Kolganov and political analyst Yuri Svetov, Gazprom has the opportunity to sell the pipeline to a third-party operator. However, such a step could be fraught with serious political risks and become a “very costly mistake for Russia.”

Earlier, Sergiy Makogon, Chief Executive Officer of LLC Gas TSO of Ukraine, weighed in on the German court ruling, jokingly offering the services of his company as the gas pipeline operator in a Facebook post.

Nord Stream 2 Almost Completed

The German Ambassador to Moscow, Géza Andreas von Geyr, has stated that the technical preparations for the Nord Stream-2 natural gas pipeline connecting Russia and Germany will be completed in the coming days.
“According to the information I have received, there are only a few kilometers left to the end of the line,” Geyr told members of the press in Russia’s Saratov Region, adding that the certification process would follow.

Previously, Matthias Warnig, CEO of the German Nord Stream 2 AG, the operator company of the Nord Stream-2 gas pipeline, stated that construction of the line is expected to be completed in August of next year, with the line expected to be operational by the end of the year.

Russian President Vladimir Putin also mentioned the imminent completion of the project during a press conference with visiting German Chancellor Angela Merkel on August 20, saying no more than 15 kilometers (9 miles) of the pipeline remained to be laid along the seabed.

In this April 9, 2010 file photo, a Russian construction worker speaks on a mobile phone in Portovaya Bay some 170 kms (106 miles) north-west from St. Petersburg, Russia, during a ceremony marking the start of Nord Stream pipeline construction.

© AP Photo / Dmitry Lovetsky

The $11 billion project, which doubles the capacity of the first Nord Stream pipeline to 110 billion cubic metres annually, has been a contentious issue between Moscow and Western countries. The latter have argued it would give Russia additional leverage while compromising Europe's energy independence. Furthermore, as the network bypasses traditional gas transit routes through Eastern Europe, it has left Ukraine concerned over a potential halt in transit payments.

The US sanctioned several entities linked to Nord Stream 2. Russia, in turn, has insisted that this is a completely commercial project aiming to diversify energy streams to Europe. The Biden administration lifted US sanctions against Nord Stream 2, imposed in 2019.

After meeting German Chancellor Angela Merkel in the Kremlin on Friday, Putin said Russia planned to fully comply with its obligations on gas transit via Ukraine even after 2024, when the relevant agreement expires.

Russia is now waiting for the European Union to share its forecast for projected imports of Russian natural gas after 2024.

"We are ready to continue pumping gas through Ukraine [after the deal expires in] 2024, but we need to know how long and how much. We need our European partners to tell us how much they are willing to buy," Putin said.