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Changes to the Gas Directive

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The document summarizes changes to the EU Gas Directive and their implications for the Nord Stream 2 pipeline project. Key points: - The amended Gas Directive subjects import pipelines like Nord Stream 2 to EU energy law within territorial waters, limiting exemptions. - Nord Stream 2 would have to comply with rules like ownership unbundling, transparent tariffs, and third-party access that could undermine Gazprom's leverage. - Gazprom may try to exempt only the short sections in Germany and Denmark to avoid full EU jurisdiction, but the EU may assert broader jurisdiction. - Previous German and EU decisions exempting Gazprom pipelines are facing legal challenges, casting doubt on exemptions for Nord Stream 2.

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Changes to the Gas Directive And How to Read them in Ukraine. Dr. Alan Riley, Verkhovna Rada, Kyiv, 29th March 2019
The Amendment? February Amendment to the 2009 Gas Directive.has anything really changed? EU legal rules and Russian gas, especially on German territory do not appear to work well together? Will there be any real change? Actually significant-at least delay for Nord Stream 2? May result in pipeline being blocked?
The New Law Import Pipelines are expressly provided to be subject to EU law within territorial sea Jurisdiction limited to Member State where a pipeline first lands on EU territory. Derogation Procedure for existing pipelines. Nord Stream 2 not an existing pipeline In principle full EU law apply to Nord Stream 2
Nord Stream 2s Obligatons Ownership Unbundling, Transparent Tariff Regime, Third Party Access & Gas Release Programme Gazprom has to sell the pipeline; transparent tariffs trigger pricing disputes with other customers; TPA gives Gazproms Russian competitors direct access to EU markets and gas release improves market liquidity More fundamentally Gazprom is subject to the same legal regime as other energy actorsloses political leverage Plus Article 11: Lex Gazprom?
Escape Routes I Article 36 Exemption Empowerment Procedure Both procedures are EU law procedures & controlled by the Commission Standards the same-Single Market, Competition & Supply security Problematic for Gazprom
Evidence for the prosecution Difficult for Nord Stream 2 to meet the legal standards of Article 36 or the Empowerment Procedure Larssons detailed evidence of gas cut offs 1991-2004; gas crisis 2006 and 2009, threats and cut off due to reverse flows in 2014. The loss of transit security for CEE states The impact on reverse flow (a EU and Ukrainian interest) Nord Stream 2 dividing the single market
Escape Route II: The Stub Hive off the pipeline in territorial waters approx 50km German, and 50km Danish Place that part of the pipeline in a separate company and only apply EU law to that pipeline. Still have to comply with OU, tariff regulation and gas release. Query TPA? More fundamentally wholly artificial- EU and esp the Gas Directive 2009 avoids legal formalism Also will NS2 need new permits?
EU Jurisdiction? Has been assumed that jurisdiction to territory of EU (for NS2 territorial seas) limits EU jurisdiction But impossible to separate one whole pipeline. EU has developed a territorial extension doctrinecould apply here e.g. Gazprom Export Monopoly only has value if there is access to the EU end of the pipeline in EU territory ECJ likely to take the view that EU does have jurisdiction.
But EU Law Does not Apply in Germany? NEL pipeline, 2009 Nord Stream 1, 2009 OPAL questionable first exemption, 2009 OPAL second exemption decision, 2016 EUGAL, 2017
Unlike in the rest of the EU Yamal Import Pipeline..fully subject to EU law..including an Art 11 assessment. South Stream Pipeline- Bulgaria faced with infringement proceedings for South Stream onshore and offshore in territorial waters
The Law Bites Back OPAL second exemption legal challenge. T-883/16 Not new infrastructure, No account of A36 terms Poland already obtained interim measures in EU Court Gazprom Commitments Decision Both cases will be lost by the Commission OPAL ruling July-Shadow over any German decision on NS2 Encourage more litigation against NS2
Problems for NS2 NS2 faces delay at least-consider restructuring? Prospect of legal problems any way it moves Prospect of Re-Permitting all the routes Prospect of substantial and multiple litigation Denmark Also Turk Stream 2?
Russian Reaction Seek to get the pipeline built or near built Do not comply with EU rules And wait for the expiry of the Ukrainian transit Bulgargas Evidence Seek to Coerce the use of NS2 Its EU law or no gas-your choice?
Ukrainian & EU Response Problem with Ukrainian transit cut off in January 2020 is that Ukraines reverse flows via Brotherhood will also no longer flow Domestic Production Improvements/Fuel Switching EU-Ukrainian Co-operation -New Pol/Ukr Pipeline -Regas Ships Case for EU/Ukrainian Strategic Energy Security Co-operation Role of US

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Changes to the Gas Directive

  • 1. Changes to the Gas Directive And How to Read them in Ukraine. Dr. Alan Riley, Verkhovna Rada, Kyiv, 29th March 2019
  • 2. The Amendment? February Amendment to the 2009 Gas Directive.has anything really changed? EU legal rules and Russian gas, especially on German territory do not appear to work well together? Will there be any real change? Actually significant-at least delay for Nord Stream 2? May result in pipeline being blocked?
  • 3. The New Law Import Pipelines are expressly provided to be subject to EU law within territorial sea Jurisdiction limited to Member State where a pipeline first lands on EU territory. Derogation Procedure for existing pipelines. Nord Stream 2 not an existing pipeline In principle full EU law apply to Nord Stream 2
  • 4. Nord Stream 2s Obligatons Ownership Unbundling, Transparent Tariff Regime, Third Party Access & Gas Release Programme Gazprom has to sell the pipeline; transparent tariffs trigger pricing disputes with other customers; TPA gives Gazproms Russian competitors direct access to EU markets and gas release improves market liquidity More fundamentally Gazprom is subject to the same legal regime as other energy actorsloses political leverage Plus Article 11: Lex Gazprom?
  • 5. Escape Routes I Article 36 Exemption Empowerment Procedure Both procedures are EU law procedures & controlled by the Commission Standards the same-Single Market, Competition & Supply security Problematic for Gazprom
  • 6. Evidence for the prosecution Difficult for Nord Stream 2 to meet the legal standards of Article 36 or the Empowerment Procedure Larssons detailed evidence of gas cut offs 1991-2004; gas crisis 2006 and 2009, threats and cut off due to reverse flows in 2014. The loss of transit security for CEE states The impact on reverse flow (a EU and Ukrainian interest) Nord Stream 2 dividing the single market
  • 7. Escape Route II: The Stub Hive off the pipeline in territorial waters approx 50km German, and 50km Danish Place that part of the pipeline in a separate company and only apply EU law to that pipeline. Still have to comply with OU, tariff regulation and gas release. Query TPA? More fundamentally wholly artificial- EU and esp the Gas Directive 2009 avoids legal formalism Also will NS2 need new permits?
  • 8. EU Jurisdiction? Has been assumed that jurisdiction to territory of EU (for NS2 territorial seas) limits EU jurisdiction But impossible to separate one whole pipeline. EU has developed a territorial extension doctrinecould apply here e.g. Gazprom Export Monopoly only has value if there is access to the EU end of the pipeline in EU territory ECJ likely to take the view that EU does have jurisdiction.
  • 9. But EU Law Does not Apply in Germany? NEL pipeline, 2009 Nord Stream 1, 2009 OPAL questionable first exemption, 2009 OPAL second exemption decision, 2016 EUGAL, 2017
  • 10. Unlike in the rest of the EU Yamal Import Pipeline..fully subject to EU law..including an Art 11 assessment. South Stream Pipeline- Bulgaria faced with infringement proceedings for South Stream onshore and offshore in territorial waters
  • 11. The Law Bites Back OPAL second exemption legal challenge. T-883/16 Not new infrastructure, No account of A36 terms Poland already obtained interim measures in EU Court Gazprom Commitments Decision Both cases will be lost by the Commission OPAL ruling July-Shadow over any German decision on NS2 Encourage more litigation against NS2
  • 12. Problems for NS2 NS2 faces delay at least-consider restructuring? Prospect of legal problems any way it moves Prospect of Re-Permitting all the routes Prospect of substantial and multiple litigation Denmark Also Turk Stream 2?
  • 13. Russian Reaction Seek to get the pipeline built or near built Do not comply with EU rules And wait for the expiry of the Ukrainian transit Bulgargas Evidence Seek to Coerce the use of NS2 Its EU law or no gas-your choice?
  • 14. Ukrainian & EU Response Problem with Ukrainian transit cut off in January 2020 is that Ukraines reverse flows via Brotherhood will also no longer flow Domestic Production Improvements/Fuel Switching EU-Ukrainian Co-operation -New Pol/Ukr Pipeline -Regas Ships Case for EU/Ukrainian Strategic Energy Security Co-operation Role of US